In addition, it is important to remember that issuing stock helps these companies grow, which should eventually increase book value. While most analysts agree that secondaries are best offered when the stock is trading above book value, American Capital was trading at book value at the time of the announcement. Similarly, at the time of Annaly’s February, 2011 issue, shares were trading at 1.1 times book. Why would a mortgage REIT do this?
Will Annaly join in?
As Fool Analyst Ilan Moscovitz explains, the move could be in expectation of change, such as a rise in short-term interest rates, or the anticipation of a bigger interest rate spread.
Indeed, though Fed chief Ben Bernanke recently reiterated that bank’s commitment to QE3 until the economy gets up a head of steam, which will keep short-term rates low, he also spoke about plans to wind down that money-easing program, which would result in a rise in the same rates. Additionally, mortgage interest rates have been edging away from their 52-week low, which is good news for mREITs, particularly if short-term rates stay put.
I would suggest that having a shopping spree in mind might also prompt a secondary offering. For American Capital Agency, there are those attractive agency MBSes to load up on. Annaly also has a big purchase in mind: The remainder of commercial paper from mREIT Crexus Investment Corp (NYSE:CXS) , which Annaly has agreed to buy at the end of the 45-day period (which expires March 16) during which CreXus can entertain better offers. Is there a secondary in Annaly’s future, as well?
For investors, knowing that there will be a dip can create the perfect opportunity to initiate a position or add to a present one. So far, at least, American Capital Agency’s stock price didn’t suffer much after the announcement, despite heavier-than-usual trading. This week may be different, but I think investors have faith in the trust’s management. And that, of course, is the main ingredient in any mortgage REIT’s success.
The article Don’t Fret Over the American Capital Agency Stock Offering originally appeared on Fool.com and is written by Amanda Alix.
Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool owns shares of Annaly Capital Management.
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