Stock price when the opinion was issued
A mortgage REIT. They leverage the slope of the yield curve, to invest in mortgages. Rising rates are not necessarily a good thing for them. It really all revolves around their ability to leverage the spread in the yield curve. There is also some reinvestment risk. If existing pools of mortgages are maturing at higher rates than what you can invest in, that impairs profitability.
It is a mortgage REIT making money by borrowing on the short end of the curve and lending on the long end. The portfolio is much larger than the capital they have to play with, so there is volatility. If rates go up next year it creates refinancing risk for them. He is not comfortable with the leverage in the portfolio.
There is a lot of volatility in the sector. He doesn’t own any of the mortgage REITs, although he does think they are starting to represent pretty decent value here. Simple explanation. They borrow on the short end of the curve, lever it up 6 or 7 times and invest it in the long end of the curve in the form of mortgages. You have seen interest rates go down which have increased their reinvestment risk, so the returns they were getting 3 or 4 years ago they were no longer getting, which resulted in dividend cuts. Results have stabilized somewhat. The rule of thumb is that you want to buy these when they are trading at about $.75-$.85 on the dollar in terms of book value. If you own, it is a pretty decent place to get high yield, just recognize that there is going to be a lot of volatility embedded within these.