My Stray Mortgage REIT

A personal note before I start; I’ve been gone the last two days because I am part of the leadership of my denomination, and we had a regional meeting for the better management of our congregations. The hotel that I stayed at promised internet service, but did not deliver on that promise; that’s why I didn’t post yesterday. My intention with this blog is to put up one or two good posts every day, excluding Sundays.

I don’t trade that often, so being away is not a problem Sometimes when I get home, there is a surprise waiting for me.  This time the surprise was a positive one, where Nelson Peltz does some house cleaning, and gives his shareholders a gift in the process. He has simplified his life by selling his stake in Deerfield Capital Management to the mortgage REIT that they manage, Deerfield Triarc Capital [DFR]. Also, he reduces his stake in DFR down to a 10% level. He gets to focus on the restaurants that he owns through Triarc [TRY].

I would encourage interested readers to look through the presentation that they did for this acquisition, and this presentation that they did to describe their management style. At my previous employer, I suggested that we start a REIT like DFR. Good as that firm was, they did not take my advice.

The price as a ratio of EBITDA for purchasing Deerfield Capital Management was around 7.5x. Pretty good acquisition price, considering that capital is not a constraint for the growth of the combined enterprise. I think the stock goes higher from here. My main concern is this: once they get to full deployment of alternative assets, this company will be very profitable, but also risky. You will likely see me sell my shares once the company reaches maximum portfolio risk. At that point, I might miss some upside, but with Meyer Rothschild, I will have sold too soon.

Full Disclosure: Long DFR