Anybody long NCT?

[Trapshooter]

I found this site a few days ago and have been lurking. Very interesting site. Thanks to all who have posted a lot of good information.

I normally invest for capital gains as opposed to yield but I recently bought Newcastle Trust (REIT) because I couldnt resist the yield. Dividend is $.72/qtr. I paid $13 per share for a yield of 22%. I also think that there is a tremendous upside in share price if they can get through the credit crisis relatively unscathed and dont have to cut the div (or just cut it moderately)which is very possible. If they keep paying anywhere close to $.72 this will have to at least double eventually. Collecting the div while I wait.

Here is my bull case for NCT.

1) Per the Q3 cc, the CEO said he has a "high degree of confidence" that the div can be maintained.
2) The sp is down 60% from the 52 week high because they have subprime exposure. However it is a small % of their assets. They are mainly into commercial loans. Perhaps the baby/bathwater effect?
3)The insiders/officers making large purchases lately.
4)Board authorized $100mm stock buyback.
5)Expecting $1B of early loan paybacks coming in next year which could provide means to get some screaming bargains on written down assets once it is safe to get back into the water.
6)Huge short interest. 12.5m shares which is 25% of the float. They have to cover at some point.
7)I think the CEO is the largest shareholder, gotta like that.
8)Current yield is 20.5%
9)$30m in the bank
10) No liquidity problems yet.

Bear Case:

1) Residential problems could spread to commercial (I believe this is the main reason why the price has been beaten down so low).
2) Subprime, wrote down (marked to market) a big chunk of their subprime in Q3. Very good chance will have additional writedown on subprime in q4.

If anyone is interested in this stock I highly recommend listening to the q3 cc. Very informative.
Obviously there is significant risk here but I think it is already priced for a disaster which may not come. What do y'all think?

 

[Trapshooter]

just announced div

Remains at $.72 for Q4.

 

[terminator]

Glad you posted your idea. I've added it to my tracking list to examine. It seems like there are quite a few bargains among MREITs these days, although I've never looked at NCT closely.

The big questions of course are how much is really on their balance sheet and how much has been securitized, the nature of their investment capital (credit line, stock sales?), what their real book value is today (i.e. are write-downs theirs or are they off the value of sold securitized assets, do they have any CDS to offset, how levered are they, etc.

 

[brewer12345]

I think any investment in these critters (who have unversally been beaten to death by the market) must include some analysis of what each company's alternatives are if the securitization markets do not reopen in the near term. Most of these guys are dependent on the market for financing whatever they invest in via securitizations, funded debt, credit lines of some sort, etc. The better and more forward thinking ones had multiple redundancies built into their funding plan and these are now being tested. I do not know when the securitization market will open wide again. In the meantime, only a few deals are getting done and only for the best issuers whose deals perormed well in the past (and who don't have any residential mortgage exposure). Look closely at what will happen to any particular MREIT if they are having a hard time getting funded. SOme are fine, others not so much.

 

[tjon72]

Take a look at the NCT preferred !