30 Jul '16, 11pm

REIT: How does a REIT Grow? Why a Low Dividend Yield REIT Grows Better and More Attractive…

REIT: How does a REIT Grow? Why a Low Dividend Yield REIT Grows Better and More Attractive…

THE CASE FOR MORTGAGE TRUSTS (February 1970) THE CONCEPT Superficially, mortgage trusts seem to resemble mutual funds designed to provide high current yields. But the analogy is misleading. The true attraction of mortgage trusts lies in their ability to generate capital gains for their shareholders by selling additional shares at a premium over book value . If a trust with a book value of $10 and a 12% return on equity doubles its equity by selling additional shares at $20, the book value jumps to $13.33 and per share earnings go from $1.20 to $1.60. Investors are willing to pay a premium because of the high yield and the expectation of per-share earnings growth . The higher the premium, the easier it is for the trust to fulfill this expectation. The process is a self-reinforcing one. Once it gets under way, the trust can show a steady growth in per-share earnings despite ...

Full article: http://investmentmoats.com/money-management/reit/how-does...

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