Based in New York City, AG Mortgage Investment Trust (proposed MITT) is scheduling a $75 million IPO, plus a concurrent private placement of $75 million, for a market capitalization of $150 million at $20 per share for Thursday June 30, 2011. The full IPO calendar includes four IPOs.
Note regarding unpostponed: Last week there were two IPOs that were scheduled by the underwriters and were on the IPO calendar: Centre Lane Investment (CNLI) and Stewart & Stevenson (SNS).
Both of them were postponed – this often happens in a down market. MITT itself was originally on the IPO calendar for the week of April 25, 2011, and was postponed that week because of ‘market conditions’ which really means because of insufficient investor demand.
Part of the reason for the postponement may have been our IPO Preview for MITT at the time, where we said “There is no rush to buy MITT.”
Since then MITT has done what often happens when an IPO is postponed. To induce demand, underwriters often cut the IPO size and market capitalization of a postponed IPO, and they try again, which is what is happening with MITT.
The current MITT IPO was 'unpostponed' as of June 22, 2011; there is clearly diminishing investor demand for MITT, and there are better, more mature options for investors. Consider the following sequence of events.
. March 7, 2011 MITT files for an IPO of up to $300 million
. April 5, 2011 MITT sets the price range for a $300 million IPO
. April 18, 2011 MITT reduces the IPO size to $250 million
. April 28, 2011 MITT postpones the IPO ‘based on market conditions’ – even though the Dow Jones Industrial average peaked at 12810 April 29, 1011 click YTD.
. June 22 MITT reduces the proposed IPO size to $75 million in conjunction with a $74 million concurrent private placement probably to the sponsor’s clients. The sponsor 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.
Our conclusion in an earlier MITT article is the same as now: "Leveraged mortgage REITS can pay 14%. There are a number of existing mortgage REITS with the same strategy that already have significant dividend yields.”
MITT’s IPO valuation is one times book. Leveraged mortgage REITs that sell for 1 to 1.2 times book and that paid over 14% in distributions over the past 12 months (according to Google Finance) include Annaly Capital (NYSE:NLY), Chimera Inv (NYSE:CIM), American Cap Agency (NASDAQ:AGNC), Hatteras Financial (NYSE:HTS), and Invesco Mortgage (NYSE:IVR).
Regarding anticipated distributions, MITT reveals the following in the S-1 page 71:
These (use of proceeds) investments are expected to provide a lower rate of return than we will seek from the implementation of our investment strategies. Prior to the time we have fully invested the net proceeds of this offering and our concurrent private placement, we may fund quarterly distributions out of such net proceeds.
USE OF PROCEEDS -- Total net proceeds from the MITT IPO are expected to be $73.5mm. Concurrent with this IPO, MITT expects to sell 3,205,000 units in a private placement. In addition, AG Funds, David Roberts and Jonathan Lieberman have also committed to subscribe collectively for 500,000 private placement shares. The concurrent private placement is expected to yield $74.1 million of net proceeds to MITT on the closing date.
The combined offering is expected to yield $148 million.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.