Menu

mREIT Preferred Share Dashboard

1

mREIT Preferred Share Dashboard
9 min read

Mortgage REIT (mREIT) preferred shares are a hybrid instrument between equities and bonds. The concepts and mechanics of preferred shares are straight forward. Of the companies and sectors that issue preferred shares, mREITs have:

  • the most compelling reasons to issue preferred shares relative to the reasons of other companies / sectors
  • the most favorable provisions (eg: cumulative dividend policies) relative to other companies / sectors

mREIT preferred shares can serve as a low-beta alternative to cash or treasury holdings for margin collateral. This is useful for potentially boosting total and risk-adjusted return on a short-option strategy.

Preferred shares, as an asset class, have a return profile comparable to high-yield bonds. According to a 2019 publication by Vanguard, “a high-yield position may improve the risk-adjusted return characteristics of a traditional balanced portfolio if funded by the portfolio’s existing equity allocation” (see pages 10 and 11 in the linked white paper). This potential boost to risk-adjusted returns may help mitigate sequence of returns risk.

Today’s post is a deep dive into the practical and actionable details of investing in mREIT preferred shares. Namely, using objective data to assess the relative risk and return of mREIT preferred shares between differing mREIT companies and to find relative bargains between shares from the same mREIT company.

Let’s dive in!

Summary

Actionable summary from the mREIT concepts writeup:

  • Don’t pay more than the stripped par value / liquidation preference for a preferred share (unless swapping between tickers from the same company to capitalize on a relative bargain)
  • Don’t invest in convertible shares
  • Only invest in preferred shares with a cumulative dividend policy
  • Don’t index
  • Agency mortgage-based securities (MBS) are insured against credit risk while non-agency MBS are not
  • A higher market cap-to-preferred liquidation ratio is better
  • A higher shareholder equity-to-preferred liquidation ratio is better
  • A lower payout ratio is better
  • Shares can be highly illiquid; purchase with high conviction and the intent to hold
  • Relative bargains may exist amongst different tickers from the same issuing company

Dashboard Links

Free, Static Dashboard

Updated quarterly, this version provides convenient, consolidated access to point-in-time price and yield data along with general dividend details.

Tables listing ticker symbol syntax and documentation references facilitates easy, self-directed and continuing research on mortgage REIT companies.

Public Dashboard

Subscriber-Only, Dynamic Dashboard

Updated continuously, this version provides near-real-time data on the most relevant mREIT preferred share attributes for making informed investing decisions.

  • price action
  • safety score
  • current-yield data
  • floating-yield data
  • stripped-yield
  • annualized yield-to-call
  • call protection and expiration dates
  • dividend accrual calculations
  • balance sheet and cash flow data
  • preferred IPOs as they occur

The mREIT preferred share dashboard is a resource that’s included in the spintwig research subscription. Already a subscriber? Log in to access the latest mREIT preferred share dynamic dashboard. Not a subscriber? Sign up for just 99 USD a year. Learn more.

Attributes and Definitions

Price Action

Data from Google Finance as well as calculated values paint a picture of immediate and past price performance.

  • 52 wk Low – the lowest price at which the ticker traded in the last 52 weeks. Source: Google Finance
  • Off Low – the % of price appreciation relative to the 52 week low. Source: calculations by spintwig
  • Last Price – the most recent price at which the ticker traded. Source: Google Finance
  • Stripped Price – the most recent price at which the ticker traded when adjusting for accumulated, unpaid dividends. Source: calculations by spintwig
  • Chng % – the percentage change in “last price” since the close of the previous trading day
  • 52 wk Rank – the rank of the Last Price relative to the 52 week low and 52 week high values. Source: calculations by spintwig
  • 52 wk Trend – a sparkline chart displaying the “last price” movement over the last 52 weeks. For tickers that have an inception date less than a year ago, the sparkline chart displays price movement from the date of inception through present. Source: Google Finance
  • Off High – the % of price depreciation relative to the 52 week high. Source: calculations by spintwig
  • 52 wk High – the highest price at which the ticker traded in the last 52 weeks. Source: Google Finance

Safety Score

A data-driven framework and quantitative measure of the relative safety of each mREIT preferred share. This is a blend of company safety (eg: ability to pay the dividend) and investor safety (eg: negative annualized yield-to-call scenarios). Methodology to determine the safety score is a as follows:

Preferred Shares

Range is from most safe (10) to least safe (negative 3).

Paused Div in 2020 (10%):

  • if No or “N/A”, add 1 point
  • if Yes, add no points

Equity Composition (30%):

  • if > 66% of the portfolio is comprised of agency mortgage-backed securities (MBS), add 3 points
  • if > 66% of the portfolio is comprised of non-agency MBS, add no points
  • if > 66% of the portfolio is comprised of origination and servicing, add 2 points
  • if no part of the portfolio has a >66% weight, add 1 point

Shareholder Equity / Pref Liquidation (30%):

  • if >=5, add 3 points
  • if >=3, add 1.5 points
  • if < 3, add no points

Market Cap / Pref Liquidation (10%):

  • if >=5, add 1 points
  • if >=3, add 0.5 points
  • if < 3, add no points

Payout Ratio (TTM) (20%):

  • if < 15%, add 2 points
  • if < 25%, add 1 point
  • if < 40%, add no points
  • if >= 40%, subtract 1 point

Annualized Yield to Call:

  • if <= 0, subtract 2 points
  • if >0, add no points

Bonds

Range is from most safe (10) to least safe (5).

Share type of “Bond”: (80%)

  • add 8 points as this instrument (bond) is not subject to preferred liquidation considerations (40%), MBS portfolio credit risk (30%), or dividend suspension (10%)

Payout Ratio (TTM) (20%):

  • if < 15%, add 2 points
  • if < 25%, add 1 point
  • if < 40%, add no points
  • if >= 40%, subtract 1 point

Annualized Yield to Call:

  • if <= 0, subtract 2 points
  • if >0, add no points

Dividend Accrual

  • Ex-Dividend Date – estimated date in which the shares will go ex-dividend
  • Progress – % of the way toward the next estimated ex-dividend date
  • Dividend Accumulated – dollars per share of accumulated, unpaid dividend
  • Dividend is Currently – indicates whether the current dividend rate is fixed or floating

Current-Yield Data

  • Stripped Current Yield – this is the current yield, adjusted for accumulated, unpaid dividends
  • Current Yield – this is the current yield, unadjusted for accumulated, unpaid dividends
  • Annualized Yield to Call – if the instrument has a call date, this is the CAGR an investor would realize if the share is to be called on the call date and redeemed for the call / par value plus any accumulated, unpaid dividends
  • Annualized Yield to Worst – this is the CAGR an investor would realize if the instrument is called at the latest possible date. For perpetual shares or bonds with no/infinite maturity, this is equal to the lower of the stripped current yield or the annualized yield to call.

Spread-Based Price Target

One way to determine maximum entry price is to compare the yield when the share was at its highest price vs the yield today then adjust for the risk-free (or 5-year treasury if the issue has a floating provision based on the 5-year treasury) rate.

Consider a 25 USD call price/par value issue that offers a 7% par yield and traded as high as 25.58 when the risk-free rate was 0%. The yield at the peak was 6.84% (1.75 / 25.58), implying a minimum spread over the risk-free rate of 6.84%. If the risk-free rate increases to 4.50%, at what price should this issue trade if we decide to never accept less than the historical spread when the share was most expensive? The answer is 15.43 USD.

The spread-based price target answers this question for each issue and accounts for the various complexities and nuances of this calculation associated with different risk-free, floating rate, liquidity, and related regimes.

Due to the generally-illiquid nature of the sector, the spread is calculated based on the 5th highest all-time high price. This eliminates outsized, temporary price spikes or overpriced IPOs (eg: IPO is underwritten then risk-free rate climbs 75bps before underwriter can sell shares) that can suggest spreads are narrower than the market actually believes.

  • Stripped Price Buy Under – the suggested stripped price under which to open, or add to, a long position based on the historical minimum spread over the benchmark rate (BR) when shares were most expensive
  • 5th ATH – the 5th all-time highest price
  • 5th ATH Date – the date on which the 5th all-time highest price occurred
  • BR on 5th ATH – the benchmark rate on the 5th ATH Date
  • Annual Div on 5th ATH – the annual dividend per share on the 5th ATH Date

Call Data

  • Call Date – the date when call protection expires and the issuer has the ability redeem the shares
  • Worst Cash to Call – the minimum amount of “cash” per share an investor will receive, net of any over/under payment on par value, if the shares are redeemed at the liquidation preference (par value) on the call date
  • Maturity Date – the date when bonds mature and are to be paid in full / when non-perpetual preferred shares are to be redeemed

Fixed-Yield Data

  • Stripped Fixed Yield – if the instrument has a fixed or fixed-to-floating provision, this is what the fixed yield would be after adjusting for accumulated, unpaid dividends
  • Current Fixed Yield – if the instrument has a fixed or fixed-to-floating provision, this is what the fixed yield would be before adjusting for accumulated, unpaid dividends
  • Yield on Par – if the instrument has a fixed or fixed-to-floating provision, this is what the fixed yield would be if the instrument was trading at call / par value and had no accumulated, unpaid dividends

Floating-Yield Data

  • Stripped Floating Yield – if the instrument has a fixed-to-floating or floating provision, this is what the floating yield would be after adjusting for accumulated, unpaid dividends
  • Current Floating Yield – if the instrument has a fixed-to-floating or floating provision, this is what the floating yield would be before adjusting for accumulated, unpaid dividends; typically comprised of a lower fixed interest rate + 3 month Libor/SOFR
  • Yield on Par – if the instrument has a fixed-to-floating or floating provision, this is what the floating yield would be if the instrument was trading at call / par value and had no accumulated, unpaid dividends
  • Floating Spread – if the instrument has a fixed-to-floating or floating provision, this is the spread the share pays on the prevailing floating rate (typically 3-month LIBOR) that is described in the prospectus
  • Floating Start Date – if the instrument has a fixed-to-floating or floating provision, this is the date when the instrument begins to yield the floating interest rate
  • Floating Yield Base – the benchmark upon which the floating spread is summed
  • Floating Yield Base % – the benchmark’s current value
  • Floating Floor – if the instrument has a fixed-to-floating or floating provision, this is the minimum the instrument will yield regardless of floating spread or floating yield base %

Dividend Data

  • Annual Dividend – total dividend paid per share per year
  • # of Payouts – quantity of payouts per year
  • Each Payout – amount of dividend paid per payout
  • Payout Months – month(s) in which dividend payout(s) occur
  • Paused Div in 2020 – lists whether the company temporarily suspended dividend payments during the March 2020 bout of volatility

Other Facts

  • Asset Class – describes whether the instrument is a preferred share or a bond
  • Structure – describes whether the instrument has a fixed-to-floating (FTF) provision, has fixed dividend for the life of the instrument, or has a floating dividend for the life of the instrument
  • Convertible – describes whether the instrument has a provision the allows it to be converted to common stock
  • Cumulative – describes whether the instrument has a provision that requires any unpaid / skipped dividends to accrue for payout at a later date
  • Preferential Tax Treatment – describes whether the instrument’s dividends are eligible for LTCG tax treatment and “dividend received deduction”
  • Sub Sector – describes the sub sector of the instrument’s issuing company

Balance Sheet and Cash Flow

  • Portfolio Composition
    • Agency – mortgage-backed securities (MBS) that are guaranteed against credit (default) risk
    • Non-Agency – MBS that are NOT guaranteed against credit (default) risk
    • Origination and Servicing – revenue generation is from origination fees and mortgage servicing
    • Hybrid – a portfolio consisting of no less than two of the three allocations above
    • N/A – portfolio is not an mREIT company
  • Market Cap / Pref Liquidation – the ratio of market cap to preferred share call value
  • Shareholder Equity / Pref Liquidation – the ratio of shareholder equity to preferred share call value
  • Payout Ratio (TTM) – the last 12 months of preferred share dividends divided by (the last 12 months of earnings per share * number of shares outstanding – the last 12 months of preferred dividends)
  • Market Cap – the value of all outstanding common shares of the issuing company
  • Shareholder Equity – the value of all the issuing company’s assets minus liabilities
  • Preferred Liquidation – the liquidation value (par value) of all outstanding preferred shares
  • Preferred Dividends (TTM) – the last 12 months of preferred share dividends
  • Earnings Per Share (EPS) (TTM) – the last 12 months of earnings per share
  • Company Data As Of – the date of the quarterly/annual SEC filing from which the data was pulled

Ticker Symbols

A table listing the mREIT ticker syntax used at each brokerage company / trading platform.

Documentation

Links to Quantum Online, official prospectus and SEC filing page for each mREIT ticker.

Version History

  • 2023-04-01:
    • add several new tickers from banks
    • add spread-based price target data
  • 2023-03-20: add CUBB ticker
  • 2023-03-10: update “Balance Sheet and Cash Flow” to reflect 22Q4 earnings data
  • 2022-11-16: update “Balance Sheet and Cash Flow” to reflect 22Q3 earnings data
  • 2022-08-14: update “Balance Sheet and Cash Flow” to reflect 22Q2 earnings data
  • 2022-07-18:
    • add 51 new tickers from banks and utilities (thank you BigERN)
    • add “Yield on Par” column for fixed rate calculations
    • add “Yield on Par” column floating rate calculations
    • add “Dividend is Currently” column to easily discern whether a share is currently fixed or floating
    • add “Call Price / Par Value” column to easily discern par value
    • add “Current-Yield Data” section to easily discern what a share is yielding regardless of fixed vs floating status
    • add “Other Facts” section with the following columns:
      • Asset Class – discerns whether instrument is a preferred share or bond
      • Structure – discerns whether dividend rate is fixed, floating, or fixed-to-floating
      • Convertible – discerns whether instrument can convert to common shares
      • Cumulative – discerns whether missed dividend payments accumulate or are forfeit
      • Preferential Tax Rate – discerns whether distributions are taxable as qualified dividends
      • Sub Sector – discerns sub sector of issuer (mREITs, Banks, etc.)

Related Posts

1 Comment

  1. Erick
    September 11, 2021 @ 11:48 am

    I like the safety score feature because it helps determine position size.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *