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American Capital Agency Corp. Message Board

  • chuck37chuck chuck37chuck Mar 4, 2013 1:46 PM Flag

    Highly encourging and highly informative article from the Motley Fool today

    The following article is about AGNC and NLY but it easily carry's over to what ARR has been doing. Great article:
    Secondary offerings are the nature of the REIT beast
    As fellow Fool Dan Caplinger has explained, secondary offerings are fairly common with mREITs, and are not necessarily a bad thing. As devotees of the sector well know, REITs are required by law to pay out 90% of their profits to their shareholders, lest they lose that sweet tax position they currently enjoy.

    This state of affairs doesn't allow for a rainy-day fund into which mREITs can sock away funds with which to make purchases of more MBSes, and that's where the secondaries come in. Since these new shares are offered at a price that is a smidge lower than the current price, however, the stock price usually declines.

    How long will the price dip persist? It varies, but, by looking back in time, we can see that it isn't onerous.

    Shares rebound, and then some
    For 2012, for instance, American Capital Agency announced a public offering of 62 million shares, with an additional 9.15 million for underwriters' options, on March 7. On that date, the closing price was $30.27, which promptly fell to $29.35 the very next day, on unusually heavy trading. By April 18, however, the stock price had rebounded to $30.52, and it was pretty much uphill from there.

    Again, another offering on July 17 for 32 million shares with a 4.8 million underwriters' option saw shares close on the day at $35.29, which fell to $33.92 on July 18, having seen heavy trading that day. The rebound began almost immediately after that, though, and the closing price of $35.38 was attained on July 27.

    Similarly, Annaly Capital Management's (NYSE: NLY ) most recent public offering of 120 million shares of common stock announced on July 11, 2011 caused a drop in the share price from $18.32 on the day to $18.05 on July 12, after extremely heavy trading. The price bounced around the $17 zone for a while, even dipping down to $16 and some change on occasion, until it registered $18.35 on August 15, 2011. Annaly had previously issued 75 million shares in February of that year, with an attendant $17.30 price tag.

    In addition, it is important to remember that issuing stock helps these companies grow, which should eventually increase book value.

    Sentiment: Strong Buy

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