MFA Financial (NYSE:MFA) is a real estate investment trust (“REIT”) that has had a rough year. To date, MFA stock is down more than 62% as of Oct. 9, but it is likely to have a significant turnaround.
I suspect that the REIT has reached an inflection point in its finances and is likely to do much better for the rest of this year and next.
One important fact to note right at the start is that MFA stock is selling well below its book value. Most of the company’s assets are real estate securities, rather than actual real estate.
For example, as of June 30, the company said that its “economic” book value, or a market-related assessment of its residential whole loans, is $4.46 per share. Therefore, MFA stock is trading for around 60% of its economic book value.
Moreover, this implies that the stock could rise over 55% if it were to begin trading for the true value of its residential whole loans. This is because $4.46 per share divided by $2.87 is 1.554, or 55.4% above $2.87.
Other Catalysts for MFA Stock
In the company’s Aug. 6 letter to shareholders, MFA Financial’s management indicated that it had made big changes. For one, it completely restructured its leverage and asset portfolios.
For example, instead of owning mortgage-backed securities, its portfolio now mainly consists of residential whole loans. In other words, it had gotten rid of derivative type securities, which require lots of daily “mark-to-market” collateral. That means that it collects the interest from mortgages directly, and the loans don’t