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Feb. 10, 2014, 12:21 PM
- American Capital Agency (AGNC +0.2%) late last week disclosed a 7.5% stake in Hatteras (HTS +1%), part of AGNC CIO Kain's plan of buying up shares in agency mREITs selling at substantial discounts to book value.
- American Capital Mortgage (MTGE +0.2%) appears to own a 1% stake, putting American Capital's investment in total at 8.5% of the company.
- We're still waiting for Hatteras' Q4 results, but book value per share was $21.31 at the end of Q3. Kain likely started buying up HTS in Q4 when the stock - following a big dive post Q3 earnings - was meandering around the $16.50 level.
- At $19.02 at the moment, the shares still trade at a 10.7% discount to September 30 book. They're up 16% YTD.
Feb. 6, 2014, 5:12 PM
- As he's doing with American Capital Agency (AGNC -0.6%), CIO Gary Kain is supplementing share repurchases at American Capital Mortgage (MTGE) with outright buys of the common stock of agency mortgage REITs.
- MTGE purchased $39M of other mREIT stock in Q4, a number lifted to $54M by the end of January. Buybacks of MTGE stock in Q$ were about 1.5M shares, or roughly 3% of the float. For all 2013, the company bought back about 13% of the outstanding stock.
- Kain on the earnings call: "Given the sizable price to book discounts in the mortgage REIT space, we believed it made sense to sell some agency MBS and buy similar MBS assets in REIT equity form at around 80% of book value. At that discount, it is equivalent to buying agency MBS 2.5 points lower in price than where you can sell them ... To us, the choice was pretty straight-forward."
- Having had their fill of questioning Kain on the stock purchases during the AGNC call on Tuesday, analysts today spent most of their time asking about the mortgage servicer acquisition - Residential Credit Solutions. While the yield on the interest-only component of MSRs is just 5-10%, the return is higher, says Kain, because owning MSRs - which act as natural interest rate hedges - allows MTGE to pull off other hedges which cost the company money.
- CC transcript
- Presentation slides
Feb. 5, 2014, 2:58 PM
- American Capital's (AGNC +1.7%) book value has fallen about as far as it should, its net interest margin has "troughed,” and its book “remains well insulated against higher rates," J.P. Morgan analysts say in upgrading shares to Overweight and raising its price target to $22 from $20.
- From peak book value of $32.49 at Q3 2012, JPM predicted a 32% decline in BV by Q4 2014; as of Q4 2013, book value had declined 26%, so the firm thinks most book value erosion is finished.
- The firm raises its Q4 2014 book value estimate to $22.21 from $20.92 based on the YTD rally in MBS prices, and lifts its 2014 dividend forecast to $2.60 from $2.20, amounting to a total annualized return of ~15.3%.
Feb. 4, 2014, 11:51 AM
- Addressing an analyst cadre somewhat uncomfortable with American Capital's (AGNC +1.6%) new policy of purchasing the common stock of its agency mREIT competitors (Wells' Joel Houck: Do you know their hedging strategies? What happens when one blows up?), CIO Gary Kain says the discounts to asset value are so great as to mitigate much of the risk.
- Kain does acknowledge some risks though, and reminds that the purchase program is but a small slice of AGNC's overall portfolio ($400M of others' stock bought so far vs. nearly $600M of AGNC buybacks just in Q4).
- For now, there won't be any disclosure of which names American Capital is buying - a position also not sitting well with those on the call. Should the positions get large enough though, regulatory filings might be required.
- Kain also reminds that AGNC isn't just boosting risk with these purchases - instead it's selling MBS at 100 cents on the dollar to buy them back (via other mREITs) at somewhere in the area of 80 cents on the dollar.
- Most of the mREIT sector (REM +0.7%) is ahead again today - Armour (ARR +0.9%), CYS (CYS +2.8%), Hatteras (HTS +1.6%), American Capital Mortgage (MTGE +0.6%), PennyMac (PMT +1.2%) - but Annaly (NLY -0.6%) lags, perhaps as investors feel it was far more conservatively positioned going into 2014 than AGNC was.
- Earnings call is still ongoing
- Previous coverage
Feb. 4, 2014, 11:18 AM
- "There are numerous reasons to believe a repeat of 2013 is not in the cards," says American Capital Agency (AGNC +2.2%) CIO Gary Kain on the earnings call. He notes most traditional agency MBS investors are underweight the sector, and MBS have already priced in continued rises in interest rates.
- Not only is American Capital aggressively repurchasing its own stock while it trades at a large discount to book value, but it bought $400M worth of other agency mREIT players ($237M in Q4, increased to $400M as of the end of January). Kain: Why buy more mortgages when you can buy the companies that own them for roughly 20% less than the value of the mortgages on their books.
- Earnings call slides
- Previous earnings coverage
- Related ETFs: REM, MORT, MORL
Feb. 4, 2014, 9:46 AM
- After spending most of last night's after-hours sessions and this morning's premarket in the red, American Capital Agency (AGNC +1.1%) moves higher in early regular session action.
- Yes, the headline drop in book value doesn't look good, but the decline suggests CIO Kain positioned the portfolio aggressively, meaning a big benefit thus far in 2014. It's possible Q4's drop in book has been reversed and more in the opening weeks of Q1. Net interest margins also widened a bit during Q4.
- Look for more color on the earnings call at 11 ET.
Feb. 3, 2014, 4:13 PM
- Net spread and dollar roll income of $0.75 per share. Net interest spread of 1.39% is up 2 basis points from Q3. Estimated taxable income of $0.65 per share equals the dividend.
- Book value per share of $23.93 is off $1.34 or 5% from the end of Q3.
- 28.2M shares or 7% of the float repurchased during Q at average price of $20.82 each. Share repurchase program is boosted by $1B to $2B.
- Portfolio size of $68.2B with leverage at 7.5x. CPR of 8% during the quarter.
- CIO Kain sounds like he caught the nice move lower in rates this year: "Market conditions (at year's end) were decidedly more stable and many of the idiosyncratic risks that we faced earlier in the year had abated ... As such, we were considerably more comfortable positioning the portfolio with a larger duration gap as we moved forward toward a more normal balance between risk and return. Given the decline in interest rates and the strong performance of agency MBS in January, we have already seen a meaningful increase in our book value."
- CC tomorrow at 11 ET
- AGNC was initially down about 3% AH, but the last trade shows the shares flat at $21.06, a 12% discount to Dec. 31 book.
Feb. 3, 2014, 4:04 PM
- American Capital Agency (AGNC): Q4 EPS of -$0.28.
Feb. 3, 2014, 10:42 AM
- The poor ISM number and resultant drop in interest rates provides more manna to the rebounding mREITs (REM), with Annaly (NLY +1.7%), Western Asset (WMC +1.9%), CYS (CYS +0.9%), Capstead (CMO +1%), and Ellington (EFC +0.8%), (EARN +0.2%) among those leading the sector this morning.
- Capstead was the first of the mREITs to report Q4 results, but American Capital (AGNC +0.9%), (MTGE -0.1%) reports on Wednesday, and investors will want to see if Gary Kain and team - so worried about higher rates - hedged away any gains to be made from their fast decline thus far this year.
- Related ETFs: MORT, MORL
Feb. 3, 2014, 12:10 AM
Feb. 2, 2014, 5:35 PM
Jan. 31, 2014, 10:26 AM
- Working today - and for the whole month of January - as the broader market sells off are the REITs. The sector - both the equity REITs and mREITs - had been punished in 2013 as rates moved higher starting last May, but another four basis point decline this morning brings the 10-year Treasury yield down to 2.66% after starting the year at about 3%.
- At least for the mREITs, nearly all put in what may turn out to be major bottoms late in 2013 amid jitters over year-end tax-loss selling and the commencement of the taper - sell the rumor, buy the news ... indeed.
- Mortgage REITs: Annaly (NLY +1.1%) +7.4% YTD, American Capital (AGNC +1.3%) +9.1%, Invesco (IVR +0.5%) +6.7%, Anworth (ANH +0.6%) +10.9%, Apollo Residential (AMTG +0.7%) +9.1%, AG Mortgage Investment (MITT +0.6%) +5.6%.
- ETFs: REM, MORT, MORL
- Equity players: Realty Income (O +0.5%) +9.6% YTD, National Retail (NNN +0.7%) +9.8%, AvalonBay (AVB +0.8%) +4.1%, Public Storage (PSA +0.6%) +4.9%, Boston Properties (BXP +0.2%) +7.8%, Liberty Trust (LRY +1%) +7.9%.
- Related ETFs: IYR, VNQ, REM, DRN, REZ, URE, SRS, RWR, ICF, SCHH, DRV, ROOF, KBWY, RTL, REK, FRI, FTY, PSR, FNIO, WREI
Jan. 30, 2014, 10:20 AM
- You're seeing a lot of demand in the assets we hold, says Capstead Mortgage (CMO +1.5%) management on the conference call after reporting a blowout Q4. In a steepening yield curve environment - the short-end anchored while long rates move higher - Capstead is benefitting from tightening spreads in the 5/1 ARMs it mostly holds.
- Mr. Market seems to have fleshed this out, and Capstead was already trading for right around book value (reported at $12.47 as of Dec. 31) vs. the double-digit discounts for long-end players like Annaly (NLY +0.2%), American Capital (AGNC -0.3%), Armour (ARR), and CYS Investments (CYS -0.5%).
- Another in the adjustable-rate arena is Hatteras Financial (HTS +1.5%).
- Related ETFs: REM, MORT, MORL
Jan. 29, 2014, 3:15 PM
- For the most part, the mREIT sector (REM -0.2%) is getting little boost from another big swoosh down in interest rates - the 10-year Treasury yield off 7 basis points to 2.69%. Confused about how to play the dislocations caused by massive QE purchases of MBS, mREIT managements are likely similarly confused about how to play the taper (another $10B reduction today).
- Peeking into the green in afternoon action are Annaly (NLY +0.9%), Chimera (CIM +0.8%), and American Capital Agency (AGNC +0.2%), but Armour (ARR -0.7%), Invesco (IVR -1.2%), American Capital Mortgage (MTGE -1.2%), Hatteras (HTS -1.7%), and Western Asset (WMC -2.6%) are nicely lower.
- Capstead Mortgage is set to be the first of the mREIT to report Q4 results after the bell today.
- ETFs: MORT, MORL
Jan. 23, 2014, 2:23 PM
- One sector nearly fully in the green on a big down day for the broad averages is the mortgage REITs (REM +0.6%) as investors - worried about further declines in book value - take comfort from a big 10 basis point dip in the 10-year Treasury yield to 2.76% (off from 3% at the start of the year).
- Leading are CYS Investments (CYS +3.1%), Annaly (NLY +1.7%), American Capital (AGNC +1.4%), (MTGE +1.5%), Invesco (IVR +1.8%), Anworth (ANH +1.3%), and AG Mortgage Investment (MITT +0.7%). The sector elephants - Annaly and American Capital Agency - are head 6% and 8% YTD, respectively.
- With the big drop in yields at the long end, how long will it be before investors stop fretting about declines in book value and shift to concern over narrowing spreads!
- Related ETFs: MORT, MORL
Jan. 16, 2014, 10:00 AM
- It's mission accomplished at Javelin Mortgage (JMI) for Phil Goldstein's Bulldog Investors, but there are other "vulnerable companies," says JMP's Steve Delaney. “Management doesn’t have a lot to stand on if the REIT’s stock is trading at 80 percent of its book value."
- Javelin has returned 33% since Bulldog disclosed a stake (and called for fast buybacks) late last summer even as the rest of the sector - including giants Annaly (NLY) and American Capital Agency (AGNC) - continued to decline. Goldstein has deferred to comment on his next target but has said he's eyeing both equity and mortgage REITs.
- Anworth Mortgage (ANH) - trading in the area of a 30% discount to book - is a "clear target" for an investor like Goldstein, says Delaney. The company repurchased 2.8M shares in Q4 and boosted its authorization to another 5M.
- Annaly and American Capital are likely too big to be targets, says Delaney, as is a smaller shop with a big backer like Leon Black's Apollo Residential Mortgage (AMTG).
- Related ETFs: REM, MORT, MORL
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