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Annaly (NLY) is the latest MREIT to announce a secondary offering. On the evening of July 11th, it offered NLY shares at $17.70. This is a reconfirmation that investors are seeking equity into secondary agency-MREIT offerings. The Treasury Bill and Treasury Bond rates offer positive yield-curve rates to investors. However, investors cannot take their eye off the ball-- that agency-paper trumps non-agency paper.

Agency-MREITs continue to attract additional funding through secondary offerings. A closer look at the offerings can provide insights into MREIT opportunities and risks. There are some firms, such as Invesco Morgage Capital (IVR), which are not 100% agency-backed paper. Because the paper is leveraged, the fact that the paper is non-agency and leveraged can cause significant losses -- or potentially outsized gains if done right. My investment dollars say "show me first' and then let's put further investment dollars with the proven management team. I lack the investment confidence in IVR to put forth additional dollars.

Why should I?


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Annaly
After the market close, Annaly announced a secondary offering of up to 120-million shares at $17.70-per share. The gross-proceeds are anticipated at $2.1-billion. Michael Farrell has proven to be cognizant and aware of the risks vs. rewards over time.

Invesco Mortgage Capital Inc. (IVR)
Invesco Mortgage is a MREIT which recently had a successful secondary offering. Its IPO was in July 2009. IVR has a significant percentage of MBS in non-agency paper. As shown below in the 10-Q balance sheet, the MBS statement indicates IVR's non-agency MBS. The non-agency MBS is a 26% percentage of total agency MBS and non-agnecy MBS combined.

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IVR raised $393-million, before fees, in its secondary offering. The current portfolio has the following attributes:



The intentional non-agency paper investment is acceptable only if the investor knows the company's position and strategy. IVR simply does not possess the Annaly, Anworth (ANH), or MFA Financial, Inc. (MFA) track record of MREIT success. The investor is left at face value with the percentage of agency vs. non-agency paper, and assumed views on their portfolio hedges. I don't think this is a fair assumption to make on a 2009 IPO with a limiited record of success during a pro-MREIT environment (i.e., decreasing interest rates). Let's stick with the proven agency-MREIT winners: NLY, MFA, ANH and American Capital Agency (AGNC). Let's bypass IVR until it proves itself.

IVR Management:
The IVR external is backed by Richard J. King. In my opinion, Annaly, Hatteras (HTS), and American Capital Agency have proven management teams in agency-MBS opportunities.

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IVR has not proven itself to warrant any rationale to bring investor dollars. The agency-MREITs, ie AGNC, HTS, NLY, have proven themselves to attract investment dollars prior to AGNC.


Disclosure: I am long AGNC, HTS.

Source: Sticking With Proven Agency-mREIT Winners Until Invesco Proves Itself