In this episode of the Left Brain Thinking podcast, host Chuck Jaffe interviews Mark Hines, Managing Director at Left Brain Investment Research, about New York Mortgage Trust (NYMT), a mortgage REIT offering an 8.5% dividend yield. The conversation explains how mortgage REITs differ from traditional property REITs, emphasizing NYMT’s focus on residential mortgage assets (approximately 75% single‑family and the remainder multifamily). Hines highlights NYMT’s current discount to book value, the potential for book‑value growth through new loan originations and joint‑venture initiatives, and the expectation that dividends will rise as book value expands. The discussion also revisits the pandemic‑induced liquidity crisis that forced many mortgage REITs to sell assets at fire‑sale prices, noting NYMT’s recovery and strengthened balance sheet. The hosts explore how NYMT can serve a dual role in Left Brain’s portfolio—providing high current income while offering price‑appreciation upside—and what circumstances (e.g., another severe market shock) might trigger a sell decision. The episode concludes with a reminder that the content is for informational purposes only and not personalized investment advice.
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Welcome to Left Brain Thinking, where creative investment ideas meet logical analysis. That's the hallmark of Left Brain Investment Research, where the analysts are looking for growth companies with the potential to double in a few years and high-yield bonds with the potential for dramatic price appreciation. Today we're talking about investing in real estate investment trusts with Mark Hines, Managing Director at Left Brain Investment Research. Learn more about him and the firm at leftbrainir.com and find out about the latest installment of Left Brain's series of Fortune Zoom events scheduled for April 8th and featuring Life Changers, stocks with big long-term potential. Mark Hines, great to chat with you again.
Hey, Chuck, I'm happy to be here.
Real estate investment trusts is not necessarily the place I would expect Left Brain Investment Research to be heading. Why? Well, because you guys like the fast growth, and REITs are more typically about steady and income. So is this one of your income-producing plays, or is it, I'm looking at REITs because if you find the right ones, they have that growth potential?
Yeah, if you find the right ones, they have that growth potential, right? We're gonna talk a little bit about New York Mortgage Trust today, and we always talk about these bonds with equity-like returns, but with sort of net interest margins have been very low lately, we don't find as many good high-yield bond opportunities as we would like. We still find some, just not as many. So we've kind of expanded that bond universe into high-income securities. And the one we're going to talk about today has an 8.5% yield, which sounds weird as a left-brained person to be talking about the yield, but it's got a very high yield and it's also got some solid price appreciation potential. So it's one we're real interested in and excited about.
How unusual is that in the real estate investment trust space? Because income-oriented investors love REITs, and at the same time They've been pretty uncomfortable with them in this lower-for-longer rate environment with everything that's been going on as a result of the pandemic. And I noticed that, you know, with New York Mortgage Trust, you're going after a mortgage REIT. That's an area that's a little hotter than say a commercial property REIT, but just in the REIT space in general, I would imagine, I mean, it may not be a unicorn, but there can't be many that left brain could like.
Yeah. Well, that's a good point you bring up about property REITs versus mortgage REITs because they are different, right? A mortgage REIT will invest in mortgage-related assets, where the property REIT will spend most of its balance sheet investing in actual property. So New York Mortgage Trust, basically they invest in residential properties. Right now they're about 75% single-family mortgage-related assets, and then the remainder is multifamily properties. And there's a lot of things to like about New York Mortgage Trust. You know, it's internally managed, we like that. They have a significant portion of inside ownership there. But then to get back to your question really about how unusual is this, It's actually not that unusual in the mortgage REIT space. The mortgage REITs are a different kind of beast altogether. Basically, the way the business model works is they will borrow short-term financing at low rates, and then they'll turn around and invest in higher-rate mortgage-related things. They also apply some leverage to their balance sheet to help magnify some of those returns. And typically, they'll invest in the types of mortgage assets that are pretty safe. You know, you think of a mortgage, you think of longer term. You don't think of huge volatility as much so as you would with the stock market. Market. So yeah, it's, it's not that unusual for a mortgage REIT, but it is really important to understand that mortgage REITs are different than traditional property REITs, if that makes any sense.
It makes plenty of sense. The other side here is that on Left Brain Thinking over the last few weeks, we've been talking more about the income side of things, and we've been talking about how you guys at Left Brain have had to expand Because while you love the high yield bonds, the high yield bond market, a little bit tricky for you to navigate. You're looking for more high income securities. Now, of course, with an 8.5% yield, New York Mortgage Trust qualifies, but you talked about how this is an income producing property with significant appreciation. So does this wear one hat in your portfolio, the other hat in your portfolio, or both? And if it wears both, what would be the trigger to sell? Like, would you hold it if one side isn't looking good because the other side's okay? How do you decide if this is gonna be a multi-pronged approach in your portfolio?
The short answer is the book value of a mortgage REIT. And I, I will talk more about the book value of this one in a minute. It does trade at a small discount to its book value, but really it makes sense to back up a second on these mortgage REITs. Mortgage REITs got hit really hard during the pandemic back in sort of the late February, March timeframe of 2020. People always talk about what happened in the stock market, but they don't talk much about what happened in the bond market there. There was sort of a liquidity crisis where very safe assets, sort of overnight borrowing assets, the types of things that mortgage REITs will borrow and rely on for liquidity, those markets froze up. They started trading, for example, agency mortgage-backed securities, which are considered very, very safe types of securities, started trading at significant discounted prices. And it created all kinds of problems because a lot of these mortgage REITs were getting margin calls, right? They use a significant amount of leverage or borrowed money on their balance sheets. And when the liquidity froze up, they couldn't get the liquidity they needed to meet their margin calls, and they were forced to do some selling at fire sale prices. So there really was huge price appreciation potential back sort of in the April timeframe of last year. A lot A lot of the mortgage REITs have been on a path to recovery. New York Mortgage Trust is one of those mortgage REITs that's been on a path to recovery. It's taken some bumps and bruises along the way. It did have to sell some things at fire sale prices. But what's really good about New York Mortgage Trust is, you know, they've got their financial house in order right now. It still trades at a discounted price relative to its book value. And this is one that traditionally has traded at a little bit of a premium. So we've got some price appreciation potential there. But also, we've got potential for that book value to grow. So not only a discount to the book value, but the book value can go up. The company's expecting to expand pretty rapidly in 2021. They're going to be doing a lot of new loan origination, some joint venture initiatives there. So I guess to get back to your original question, this has price appreciation potential not only from the discount versus its book value, but it also— that book value is going to continue to grow. So this is best of both worlds, that sort of high dividend, 8.5% yield. And I guess while we're adding positive things, we should also mention that this one, it's going to keep raising its dividend most likely going forward. As that book value rises, the dividend's going to rise too. So it's, it's just kind of an attractive point in the cycle here where the mortgage markets, the bond markets have calmed down and this company is going to grow its dividend and its book value over time. So it's, it's attractive.
I know that at Left Brain Investment Research you do not put price targets on things, but as long as the dividend remains where it is— and again, if the stock appreciates, the dividend yield comes down— but if you buy in now and you're getting 8.5% and you're not adding money to it, your money is getting its 8.5% and then maybe more as that dividend grows over time. So given the rate environment we're in, basically as long as it's holding to that income for you, this is going to be a long-term hold, correct? It's gonna have to do something that fundamentally changes the income picture, if not the total return picture, in order for it to be something you move away from. Yes.
Yeah, that's, that's right. You know, joking aside, it, it would take another pandemic, right, type market environment for something to really do any kind of serious damage to New York Mortgage Trust's dividend at this point. And again, it's one that. Likely going to keep growing in the quarters ahead as that book value goes up. So this is one you can hang on to for a while. You can get some share price appreciation and keep collecting that income.
Mark, great stuff as always. Thanks so much for joining me to talk about it.
Thank you, Chuck. My pleasure.
Left Brain Thinking is a joint production of Left Brain Investment Research and MoneyLife with Chuck Jaffe. Our conversations are not personalized investment recommendations but are designed to engage your brain. Please do your diligence before making any financial transaction. I'm your host, Chuck Jaffe, and you can learn more about my weekday podcast at moneylifeshow.com. Thanks to my guest, Mark Hines, Managing Director at Left Brain Investment Research. Learn more about the firm and its analysis at leftbrainir.com, and go there for details on the Fortune Makers Zoom event scheduled for April 8th featuring life changers, stocks with the potential to be big gainers for decades. They're on Twitter @LeftBrainIR. Left Brain Thinking is available every Wednesday. Find it and subscribe on your favorite podcast app and plan to put your left brain thinking cap on every week. Until next week, stay safe, everybody.
