12 replies to this topic

[greenie]

I have been going through a list of all REITs to short, and this one popped up on top of my list. I may short it on any pop to 16 with a target of below 8. Following reasons make it attractive: 1. NRO is a REIT that buys stocks of other REITs. You know how those REIT stocks are doing lately. 2. It has high dividend. REIT with high dividend is often a bad sign. 3. It has been lagging IYR lately. Market knows that it is vulnerable. If I short it, will let you know.

[OEXCHAOS]

You might make money in this one just due to momentum and panic. It never hurts to short the new low list, in general, at least for a while. BUT, I have a problem with your logic. A REIT that buys other REITS isn't like CMGI. In fact, it's basically (if I understand the company correctly) buying REITS at a discount. If it's trading at a discount, then you're taking a TON of risk out of the equation. In fact, its the type of thing (assuming that it's not just buying crap or stuff at no discount and that it's at a discount) that would rally or get taken over and liquidated. Better to short companies with complex stories and balance sheets that nobody can properly address the risks in. Mark

[ogm]

NRO and NRI are Closed end funds. They are trading at about 5-6% discount to NAV... at the top of the reits they were trading at 15% discount... now that is compressing.

Its like they were anticipating the decline, but now the discount is falling.....

The biggest panic is in mortgage related REITS.. NRO and NRI have rather limited exposure to that area. They are well diversified across the whole REIT spectrum.

And contrary to what the whole world thinks.... NOT ALL REITS ARE GOING OUT OF BUSINESS
Real Estate is not obsolete, and we won't all live under the moonlight. And people will need offices and retail stores and other facilities.
Not the whole economy will function under the stars without a roof.

REITS historicaly pay 3-12% income to holders. 3 month ago we were in the environment were REITS were paying 3% on average.. and now that has improved significantly as prices came down. At 11% payout.. NRO and NRI aren't a bad deal. Its the 3% that wasn't normal.. 11% is normal.

http://www.etfconnec...asp?MFID=108695

If anything I think you should be buying this thing here and holding it with both hands to suplement the social security income It may drop some more as Mark said, but this isn't going to zero. Actually, if you assume that "other" in that chart is all mortgage reits, and they will all go to zero, and nothing will be ever recovered from them.. its still a good deal.

Edited by ogm, 05 August 2007 - 03:34 PM.

[greenie]

I am not very bright, and simplicity appeals to me a lot. Lowering target to 6. By then dividend yield will be 36% !!!

[ogm]

Also... about 25% of their shares are not in common stocks but in prefereds. So even if all stocks they hold go to zero and never recover , as the real estate becomes demolished and we all live under the stars... you still get something back on your investment, since prefered > common. If this thing ever falls to 8, I'll take out margin at 7% and load up even more. These are income vehicles, and pretty good ones. Lets make some simple calculations... lets say some REIT was renting out its facilities at certain price last month, and was distributing income at 3% rate... This month they are renting out same facilities at the same price , but their stock dropped in half... Nothing really changed in their business, they made same money, and distributed same income. So what has changed in a month that you short those REITS ? What about the next month... they still are doing the same thing.... only the stock is down 30%... you still get the same income........... REITS have been able to refinaince a lot of their debt over the past few years at low rates, and even aquired some more properties with cheap debt. .. So the stocks feel, so what.. their profits have improved..... Mortgage REITS are a little different story, but I still think not all of them will fail. Not all of their assets will be written off, and not all payments on all mortgages in the world have stopped, contrary to poupular opinion. Those that got heavy on leverage are in a bit of a trouble now, but only because paniced creditors issuing margin calls on heavily marked down assets, most of which are still very well performing.

Edited by ogm, 05 August 2007 - 03:52 PM.

[beta]

I am not very bright, and simplicity appeals to me a lot.

Lowering target to 6. By then dividend yield will be 36% !!!

Id wait for da Bounce -- good short entry around 15.8-16.4 IMO.

[ogm]

I am not very bright, and simplicity appeals to me a lot.

Lowering target to 6. By then dividend yield will be 36% !!!

Id wait for da Bounce -- good short entry around 15.8-16.4 IMO.

Nah, there won't be any bounces. We all know that real estate is obsolete.

That all people in the world have stopped paying mortgages, corporations moving their desks and computers to the open air, and shopping malls are turning into Bagdad outdoor farmers market.

The end of the world is here.


Only gold will be going up. We'll be living in gold and paying rent to gold. Right ?

btw, aren't you liable for the dividends if you're short ? Don't know how it works with Closed end funds.
Monthly distributions, btw.


I'm comparing this massacre in REITS to the massacre in Utilities after Enron disaster.
Back then we all knew that Electricity will be obsolete and all utility companies will go out of business.

Real Estate and Powerplants are INCOME producing assests. Gold is NOT.

Ultimately its the income producing assets that have value, not something that has limited speculative value.

If you're willing to short a fund that is trading at a discount to its assets and be liable for the distributions.. go ahead. Remember that 25% of the fun is in prefereds.
Yes, the commons may decline, but the stream of income is not going to stop.
36%.... I'm salivating already.

Edited by ogm, 05 August 2007 - 06:03 PM.

[beta]

See, e.g. NFI (NYSE: NFI). From its 143 peak ==> closed at 6 on Friday. Pays 311% dividend. Doesnt seem to deter the shorts (float is > 50% short). Must be a reason for the high yield.

Edited by beta, 05 August 2007 - 06:45 PM.

[greenie]

There are thousands of bright people in Wall Street and outside parsing the numbers for this company. They all can see that the company is paying 12% dividend at the current stock price, whereas to get anything above 5% from US government they need to kill each other's brother. Why are they throwing away this wonderful opportunity? It is not true that they are discarding all REITs remotely related to mortgages. Take for example NLY, another mortgage REIT. Why is it going up for last three days? I am not very bright myself, and so just follow what the geniuses in wall street figure out for these simple-to-parse assets.

[ogm]

See, e.g. NFI (NYSE: NFI).

From its 143 peak ==> closed at 6 on Friday.

Pays 311% dividend. Doesnt seem to deter the shorts (float is > 50% short).

Must be a reason for the high yield.

Hmm..... let me try to explain the difference between NRO and NFI....

But before that, just a quick observation that ... you make my point for me.... People are throwing out everything that has anything to do with real estate, without even trying to figure out what it is. If it has words like Real Estate or Mortgage assosiated with the company.. it goes out the window.... Thats the extreme panic environment we're in. ....

Now... NFI... is a mortgage lender, its a single company, they operate based on their warehouse lines of credit. Read heavy leverage, and specialize in "nonconforming" mortgages... guess what it is. NFI's business is hurt, the securitization of nonconforming loans is pretty much dead, and the other businesses will probably pull through overtime. Or Not... it doesn't matter.

NRO on the other hand is a closed end ETF... their portfolio consists of 75% common stocks of REITS, and 25% prefered stocks. Many of those REITS are good, highly profitable companies that own a lot of good income producing propeties. And will survive through this debacle and come out on the other side more profitable then they ever were. They can't cut their dividends, since they are REITS. Their dividends can be only cut if their profits drop. NRO's portfolio is very diversified along the whole REIT spectrum. Appartments, Offices, Retail, Healthcare, and so on...


The only REITS that are really getting hurt right now business wise, are so called Mortgage REITS. and they are getting hurt mostly because of leverage and the market conditions, that put very low value on the mortgage loans, even if those loans are performing. Thats where the main bloodbath is in REITS. And even though a lot of those REITs will survive, the market is heavily discounting them.


Now, look here.... this is how the sharks operate. Scamming money out of the gullible.... Use the market pressure to heavily discount stuff, issue margin calls and buy on the cheap, while Sowood, AHM and others lie in shambles.


"July 31 – Financial Times: “Forget vulture funds that feed on the carcasses of dying companies or investment vehicles by snapping up chunks of distressed debt. Citadel is proving to be more of a whale – simply swallowing them whole. Last year, the $14bn hedge fund teamed up with JPMorgan Chase to ingest Amaranth’s positions at bargain rates when the $9bn hedge fund made disastrous bets on natural gas. Its latest move is to buy Sowood’s credit portfolio, after the once-$3bn hedge fund saw its value halve as a result of bad bets… Unlike some funds that manage many billions of dollars with small staffs, Citadel employs more than 1,000 people.”

Edited by ogm, 05 August 2007 - 08:55 PM.