AG Mortgage Investment Trust (proposed MITT) is scheduling a $250 million IPO with a market capitalization of $268 million for Friday, April 29, 2011.
CONCLUSION -- Leveraged mortgage REITS can pay 14%. There are a number of existing mortage REITS with the same strategy that already have significant dividend yields. There is no reason to rush after the MITT IPO.
MITT is a newly formed mortgage REIT intending to focus on non-agency backed (non-government guaranteed) mortgages. On the IPO MITT will sell for about book value and will invest IPO proceeds according to a leveraged strategy.
Established REITs with significant dividend yields include (ranked with largest market capitalization first): Annaly Capital (NYSE:NLY) 14.1%; Chimera Inv (NYSE:CIM) 14.2%; American Cap Agency (NASDAQ:AGNC) 19.4%; Hatteras Financial (NYSE:HTS) 14.5%; Invesco Mortgage (NYSE:IVR) 16.9%, according to Google Finance.
Over the past year the above group’s stock prices increased on average 2%.
Mortgage REITS in this sector borrow money at low rates to invest in higher yielding mortgage packages. When short term rates increase, dividend yields can be expected to decline for the mortgage REIT sector.
BUSINESS -- AG Mortgage Investment Trust, Inc. is a newly formed Maryland corporation that will invest in, acquire and manage a diversified portfolio of residential mortgage assets, other real estate-related securities and financial assets, which we refer to as our target assets.
MITT INVBSTMENT STRATEGY -- Over time, MITT expects its portfolio will focus on residential mortgage-backed securities, or RMBS, that are not issued or guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or non-Agency RMBS.
Non-Agency RMBS investments are expected to include fixed- and floating-rate securities, including investment grade (AAA through BBB) and non investment grade (BB and below). MITT expects to include mortgage pass-through securities and may include collateralized mortgage obligations, or CMOs. Over time, we expect to transition our portfolio from Agency RMBS to non-Agency RMBS.
MITT EXPECTS TO USE LEVERAGE
“There is no limitation on the amount of leverage we may utilize.” S-1 Page 11
“We may utilize derivative financial instruments (or hedging instruments), including interest rate swap agreements and interest rate cap agreements, in an effort to hedge the interest rate risk associated with the financing of our portfolio.” S-1 page 8
“We expect, initially, that we may deploy, on a debt-to-equity basis, up to 6 to 9 times leverage on our Agency RMBS assets. With respect to our non-Agency RMBS and CMBS assets, we expect to deploy 2 to 3 times leverage, except in conjunction with securitizations which provide term financings that may be available to us depending upon market conditions. For these asset classes on an aggregate debt-to-equity basis, we currently do not expect to exceed, on a debt-to-equity basis, a 4.5-to-1 leverage ratio.” S-1 page 9
INVESTMENT ADVISOR -- Angelo, Gordon & Co. is a privately held registered investment advisor dedicated to alternative investing. The firm was founded in 1988 and currently manages approximately $23 billion. Angelo, Gordon has 230 employees.
USE OF IPO PROCEEDS -- $250 million, allocated to cash or short term securities until invested
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.