Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC) & American Capital Mortgage Investment Crp (MTGE): Has This Mortgage REIT Wunderkind Lost His Touch?

Page 1 of 2

Annaly Capital Management, Inc. (NYSE:NLY)Several mortgage REITs reported first-quarter results last week, among them Annaly Capital Management, Inc. (NYSE:NLY), American Capital Agency Corp. (NASDAQ:AGNC), and American Capital Mortgage Investment Crp (NASDAQ:MTGE), the hybrid cousin of AGNC. Annaly Capital Management, Inc. (NYSE:NLY)’s report wasn’t full of surprises and presented ho-hum earnings in addition to its continually contracting net interest spread.

What no doubt did surprise everyone who keeps an eye on the mREIT sector were the subsequent earnings announcements of the other two companies, both of which lost money — and share a CIO in the well-respected Gary Kain.

What the heck happened?
Both of Kain’s trusts are heavy hitters in the sector, with yields of 16.30% for American Capital Agency Corp. (NASDAQ:AGNC) and 14.29% for its hybrid sidekick, compared to Annaly Capital Management, Inc. (NYSE:NLY)’s not-too-shabby 11.90%. Dividends have been robust, too. The agency-only American Capital Agency Corp. (NASDAQ:AGNC) has been paying a hefty $1.25 per share for quite a while now, and American Capital Mortgage Investment Crp (NASDAQ:MTGE) has been paying $0.90. Compared with Annaly’s dwindling payout, these trusts seemed to be a gold mine.

Then, came the first quarter of 2013. American Capital Agency Corp. (NASDAQ:AGNC) lost $1.57 per share, and the smaller hybrid mREIT lost $0.56 per share. Why did the agency paper perform so poorly?

According to Kain, the main culprits in the first-quarter earnings/book value massacre were: 1) the drop in values of mortgage-backed securities, with a commensurate uptick in interest rates, due to rumors that QE3 might end early on signs of economic strength; and 2) the secondary offering, which did not foresee the aforementioned changes during the first quarter of the year.

Page 1 of 2
Loading Comments...