ARR has priced a secondary offering of 65 million shares at $6.84 per share, raising their net proceeds estimate to roughly $440 million. “Given currently available spreads versus the existing portfolio roes, we believe the new capital can be deployed at slightly accretive levels assuming roughly 9.0X leverage,” points out Deutsche Bank. BOFA/Merrill Lynch has also downgraded Armour Residential from buy to neutral.
Like Armour’s other offerings, a monthly dividend will be paid, and there will be a slightly larger first dividend payment on ARR-B of $0.2461 per share (instead of the typical $0.1640625). I believe ARR-B has greater relative value in comparison to ARR-A, which was the earlier preferred stock. Both of them trade at a current yield of just over 8%, but ARR-B trades below par while ARR-A trades at a premium that will take some time to recoup. ARR-B offers an attractive monthly coupon rate that compares favorably with other agency mREIT preferred stock available in the market. If you are comfortable with the risks of the mREIT industry and would like the stable dividend yield of a preferred, ARR-B is a good income investment opportunity.
Realty Income Corp (NYSE:O) has shown some good numbers in its most recent quarter, including a 16% increase in the top line to $130 million and fund generation from operations (defined as net profit with depreciation and amortization added back) growing by 6%. The guidance for 2013 projects an adjusted fund generation from operations of between $2.33-$2.39 per share compared to $2.06 per share for 2012. Occupancy is at an impressive 97% on the over 3,250 properties that the company operates.
The tenant roster has plenty of famous names but none that takes up too much space. FedEx is post-merger Realty Income’s top renter, but the famous logistics company accounts for just over 5% of its total portfolio rental revenue. The rest of the list consists of the likes of L.A. Fitness, AMC Theaters, CVS, and BJ’s Wholesale Club. The company has also acquired and absorbed American Realty Capital Trust, a smaller REIT, and this is the reason the company raised its AFFO projection. It anticipates that the new acquisition will add $0.20-$0.22 per share. However, you should note that the dividend yield at around 4.9% is low compared to its peers.
Two Harbors Investment Corp (NYSE:TWO) has an attractive portfolio, which is very well diversified with high yielding non-agency residential mortgage backed securities making up 19% of the portfolio and providing the company with an advantage over its competitors. As of the end of the fourth quarter, the company’s agency MBS portfolio yielded 2.9% in comparison with 9.5% on its non-agency MBS portfolio.
It is now acquiring residential properties which will be leased out for income. The company has an attractive valuation compared to most of its peers in the US and is currently trading at an 8% premium to its book value, while American Capital Agency and MFA Financial are trading at a 3% and 28% premium to their respective book values. In contrast, Annaly Capital Management is trading at a 4% discount to its book value. The dividend yield is highly attractive, and the stock is recommended for income investors comfortable with mREIT risk
I have often said that mREIT stocks are not ideal long-term income investments. But, they do offer some of the most attractive yield investments in the market and will continue to do so in a low interest rate regime which, I believe, should last through 2014 at the very least. There is no reason why investors should not take advantage of this. I recommend buying Armour Residential. At the same time, investors should keep an eye on interest rate developments.
The article One mREIT to Put on Your Buy List This Week originally appeared on Fool.com and is written by Jordo Bivona.
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