Mar. 19, 2014, 3:13 PM
- A check of sectors following the FOMC statement and updated projections suggesting a quickened pace of rate hikes in the future finds the banks and life insurers notably moving higher. Both groups have struggled earning a spread amid ZIRP and are positively levered to higher rates.
- Lenders: Bank of America (BAC +1%), Citigroup (C +1%), JPMorgan (JPM), Regions (RF +1.7%), KeyCorp (KEY +0.9%), SunTrust (STI +0.7%).
- Life insurers: MetLife (MET +1%), Prudential (PRU +0.7%), Lincoln National (LNC +1%).
- Related ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, KIE, SEF, IYG, IAK, FXO, PFI, KBWB, FNCL, FINU, RWW, RYF, PSCF, KBWP, KBWI, FINZ, KBE, KRE
- Not necessarily positively levered to higher rates are the mortgage REITs (REM -1.6%): Annaly (NLY -1.8%), American Capital (AGNC -1.7%), (MTGE -1.9%), Armour (ARR -1.3%), Two Harbors (TWO -2%) CYS Investments (CYS -3.3%), Capstead (CMO -1.3%), MFA (MFA -1.8%).
- Related ETFs: MORT, MORL
Mar. 13, 2014, 3:16 PM
- Ports in a storm on a tough day for the major averages (S&P 500 -1.4%), the mREIT sector is mostly in the green, with sector giants Annaly (NLY +1.1%) and American Capital (AGNC +1.1%) leading the way.
- The 10-year Treasury yield is off eight basis points to 2.65%.
- Earlier: Dividend hikes at mREITs? Capstead (CMO +0.9%) and Ellington Residential (EARN +1.9%) boost payouts by 10%.
- Others: Armour (ARR +0.9), CYS Investments (CYS +0.9%), Dynex (DX +0.8%).
Mar. 7, 2014, 12:46 PM
- The mortgage REITs are maybe the poorest performing sector amid a big move higher in interest rates, and formerly bullish Deutsche Bank ringing the register on New York Mortgage Trust, CYS Investments, and American Capital Mortgage after nice runs for all have pulled them close to (or above in NYMT's case) book value.
- There's also an earnings miss this morning from one of the last of the players to report Q4, Western Asset Mortgage.
- Annaly (NLY -2.1%), American Capital Agency (AGNC -2.3%), Armour (ARR -1.4%), Two Harbors (TWO -1.8%), Invesco (IVR -2.7%), Capstead (CMO -1.2%), MFA Financial (MFA -2%), Apollo Residential (AMTG -1.7%)
Feb. 26, 2014, 10:20 AM
- In sharp contrast to the views at American Capital (AGNC +0.5%), Annaly (NLY +3.2%) CEO Wellington Denehan-Norris - speaking on the earnings call - says it makes more sense to lever up and directly buy mortgage-related assets than repurchasing shares or buying the stock of other mREITs.
- Why rely on the management of other companies, says Norris, reminding of the 1998-99 period - another time when mREITs traded well below book value. After the collapse in Russia, it was found one "darling" in the mortgage REIT industry (no longer in business today) owned the debt of that country.
- Satisfied with hedges currently in place, Annaly doesn't plan to add any more as it buys more MBS. After taking down leverage to 5:1 over the past year, the company is looking to bring it back towards 7:1.
- On the growing commercial side of the business, Annaly is in talks with an originator of commercial mortgages for direct access to its assets.
- Noting the recent sluggish economic stats, particularly as they relate to housing, management doesn't feel like the Fed will soon be in any position to tighten policy.
- Presentation slides
- Previous earnings coverage
- Related ETFs: REM, MORT, MORL
Feb. 26, 2014, 9:58 AM
- A check of the mREIT sector (REM +0.8%) following better-than-expected Q4 results from Annaly finds about all the individual names in the green.
- Like many earlier reporters, Annaly experienced a pleasing drop in prepayments during Q4, leading to a widening net interest margin.
- American Capital Agency (AGNC +0.8%), Armour Residential (ARR +0.9%), CYS Investments (CYS +0.6%), Hatteras Financial (HTS +0.9%), Dynex (DX +1.1%)
- ETFs: MORT, MORL
- Annaly's earnings call begins shortly. The stock is up 3.5% in early action.
Feb. 15, 2014, 9:00 AM
- "Get used to it," is what American Capital Agency (AGNC) CIO Gary Kain hears from many about the significant discount to book value his stock (and the entire agency mREIT sector) sell for. If things like banks and closed-end funds can trade at discounts, why not agency REITs? It's all about collateral, responds Kain. The fixed agency MBS market is the world's 2nd most liquid, totally transparent, and offers negligible bid/ask spreads. There is complete certainty with respect to book value, not always true with other sectors selling at discounts.
- Presentation transcript here, presentation slides here
- Off the purchase of a 7.5% stake (8.5% if MTGE is included) in Hatteras (HTS) - the only of AGNC's mREIT purchases made public so far - Kain said he wanted to get exposure to hybrid ARMs, but they're not easy to buy in size. A sizable American Capital buy could have moved the market by half a point or more. The better way to get a decent stake was by buying Hatteras at around a 20% discount to book.
- Clearly feeling his oats after a tough 2013 (he notes book value fell just 5.5% while the stock declined 14.3%), a confident Kain says buyers of agency mREITs are not only purchasing a portfolio of MBS selling for significant discounts to where they trade in the open market, but those MBS - having already priced in a stronger economy and a Fed QE exit - have room for sizable upside.
- Related ETFs: REM, MORL, MORT
Feb. 12, 2014, 10:58 AM
- Perhaps taking a dig at American Capital's (AGNC +0.3%), (MTGE +1.4%) Gary Kain, Hatteras (HTS +2.3%) management - speaking on the earnings call - says it's not buying up any shares of other mortgage REITs because it would then lose control of the hedging.
- Kain (actually the two mREITs of which he is CIO), of course, is now an owner of Hatteras, disclosing last week an 8.5% stake in the company amid his decision to buy up the common stock of agency REITs while they're trading at significant discounts to book value.
- Earlier: Interest margins on the rise at Hatteras as prepayments slide.
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
- Press release
- 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
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
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