MetLife Adds Exposure to Hotel Mortgages
MetLife (NYSE:MET) is the largest insurance company in the U.S. with total assets of over $730 billion as of December 31, 2010. MetLife competes with AIG (NYSE:AIG), The Hartford (NYSE:HIG), Prudential Financial (NYSE:PRU) and New York Life Company. MetLife is also one of the leading provider of commercial mortgage loans in the U.S. and the value of its mortgage loan portfolio increased from $51 billion in 2009 to about $55.5 billion in 2010. The rebound in the hotels and tourism industry is helping MetLife increase its commercial mortgage loans portfolio.
We have a price estimate of $48.83 on MetLife’s stock, which is about 10% above the current market price.
Insurance companies like MetLife collect premiums from their customers and then invest these premiums to generate additional income. The majority of MetLife’s investments are in fixed income securities which is essential to minimize the risk of the overall portfolio and because the company can roughly match up the duration of the bonds it holds with the expected need for funds.
Mortgage Loan Portfolio
MetLife invests about 13% of its investment capital in mortgage loans in different property types such as office space, retail stores, apartments, hotels, industrial, etc. The company’s mortgage loan assets have risen steadily from $41 billion in 2006 to $51 billion in 2008; however, the economic crisis and subsequent slowdown in the real estate market caused MetLife’s mortgage assets to dip in 2009 before recovering to $55 billion in 2010.
Mortgage loans on office space and buildings increased by 10% in 2010 while loans on retail establishments such as malls, retail stores, groceries, lifestyle and community centers increased by 16% in 2009 compared to last year. Loans on residential apartments were down by 3% and mortgage loans on hotels were also down by about 1%.
Recently the senior Managing Director of MetLife, Robert Merck, said at the UBS asset gathering conference in Boston that the hotels have rebounded stronger than apartments and that MetLife will invest in high quality, destination type hotels which have proven to be a good investment for them. [1]
According to the Smith Travel Research Inc., in the first two months of this year, revenue per available room in the top 25 U.S. markets increased to $68.89 from $62.90 in 2010. The sales and acquisition of hotels in the U.S. are also expected to jump by about 25% in 2011 which will increase the demand for mortgage loans in the U.S.
See our full analysis of MetLife.
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