American Capital Mortgage Investment Corp. (NASDAQ:MTGE) launched its hybrid-mREIT IPO on August 4. The MTGE IPO sold 8,000,000 shares at a $20 price. I have difficulty understanding who the brokers would target this share offering to, and will discuss the rationale for my passing on MTGE at the current time.
The agency-mREIT and hybrid-mREIT markets are so full right now that MTGE was sure to fall below offering price. At $19.53, MTGE is performing pretty well considering all the factors compared to its hybrid peers.
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The non-agency mREITs have taken hits to their book value per share. Both Two Harbors Investment Corp. (NYSE:TWO) and Invesco Mortgage Capital Inc. (NYSE:IVR) have experienced negative non-agency book value per share valuations. The non-agency MBS have lost value compared to the agency-paper of their peers.
MTGE will opportunistically engage in buying and selling agency-mREIT paper and non-agency mREIT paper. Agency-MBS paper is implicitly guaranteed by the U.S. Federal government. Non-agency MBS paper does not have any federal guarantee. On a related comparison, Annaly Capital Management, Inc. (NYSE:NLY) is the external manager for Chimera Investment Corporation (NYSE:CIM). Annaly owns FIDAC, which provides these external management duties.
Gary Kain, who is also the president and CIO of American Capital Agency Corp. (NASDAQ:AGNC), is MTGE's president and CIO too and is proven in this role. Jeff Winkler has been designated as the (page 4) point man for the non-agency portfolio. We shall see how effective he is with the non-agency paper.
American Capital, Ltd. (ACAS) sits back and takes a 1.25% annual percentage of AGNC equity. This is a significant percentage as AGNC recently raised additional capital via a secondary. American Capital, LLC is a subsidiary of ACAS. Officially American Capital, LLC receives the 1.25% annual skim off the top of the AGNC shareholders' equity.
I must admit I am disappointed with American Capital, LLC's decision to increase its annual percentage of MTGE's shareholder equity, in comparison to the 1.25% cut at AGNC. ACAS management decided to increase the management fee to 1.50% of shareholder equity for MTGE:
As I read the MTGE SEC S-11 filing, it appears ACAS is becoming more aggressive in the fees it's extracting from AGNC and MTGE shareholder equity.
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I will wait to observe SEC filings to determine how aggressive MTGE is within the non-agency MBS markets. Based upon TWO and IVR's book valuation hits compared to their agency-MBS peers, MTGE has significant uncertainty for me to open a position at the present time.