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Invesco Mortgage Capital Inc. Message Board

  • spacedog100 spacedog100 Aug 24, 2011 7:13 PM Flag

    IVR SPO confusion

    IVR had a successful offering of 20 million shares at 18.37 a share so why did the shares fall immediatly down to a low of 17.02 on the stock exchange. If investors liked it at 18.37 shouldn't it of traded at that price on that morning of the exchange opening. I don't get it.

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    • That's no problem. I think what those that are comparing IVR with the others are doing is really comparing the different sectors of mREITs and using those companies as representatives.

      BTW, I checked the NAREIT website for how they classify REITS and they use the following definition.

      Hybrid REIT
      A REIT that combines the investment strategies of both equity REITs and mortgage REITs.

      IVR clearly is not a hybrid REIT using the above def as I don't believe they invest in properties like equity REITs do. NAREIT did not have a def for hybrid mortgage REIT.

    • My point is that IVR cannot be judged the same way that AGNC and NLY are. They are in different leagues, and several folks on here seem to think they aren't.

    • rlp, the term "hybrid REIT" is really short for hybrid mortgage REIT, meaning they invest in both types of mortgages-- agency and nonagency MORTGAGES> Rarely are there companies that are hybrids of both mortgage and equity.

      The dilution worry is not about dilution to earnings because as I explained GAAP earnings are not the basis for dividends which are calculated based on taxable earnings. The dilution does figure into the book value calculation and as I stated in another post (which Susan misread), one (not the only) factor in gauging mREIT value is to look at their price to book ratio. If their spo is not as accretive to book, it can keep a lid on the stock price.

    • dude, read your posts before you hit the post button.

      IVR is an mREIT. They invest in mortgages and they qualify as a REIT. I didn't say they were an agency mREIT. They are clearly not an equity REIT, for which the short-hand "REIT" is used.

      Now, understand about secondary offerings ("SPO"). Most SPOs for mREITs are accretive to BOOK VALUE because the shares are typically trading above book when the offering is made. That is what the debate on this board was about, whether they issued shares below book, thereby causing a further dilution to BOOK VALUE.

      You said the concern is about diluting earnings. That is not really the main concern. The main concern is whether the book will continue to decline because of (i) mark downs on hedges AND (ii) widening spreads on nonagencies (this one is not talked about much). The concern over the book and the SPO is spilling over into a concern of whether they can still pay a divy of $0.97 next quarter. Maybe they can, maybe they can't, but the cause is not because of GAAP mark-to-market on their swaps because the dividend is not calculated based on GAAP earnings but instead on taxable earnings.

    • This is from the Credit Suisse 2011 Investor Forum presentation slide FROM IVR:

      Hybrid Mortgage REIT
      ๔€‚ƒ Unique ability to invest across mortgage markets
      ๔€‚ƒ Utilize diversification to balance risks and lower hedging costs
      ๔€‚ƒ Focus on leveraging mortgage spread and hedging rate risk

    • pws112 Aug 25, 2011 10:09 AM Flag

      Bull it stil an mREIT!

    • This kind of action is common on SPOs of MREITS. I find it mysterious, but very predictable.

      I'm long here.

      • 2 Replies to cubit100
      • There's no mystery about the price action in shares like mREITs and MLPs that are frequent secondary issuers. With MLPs, they almost always raise equity after they announce a project acquisition. With mREITs, the tendency is to raise equity when their stock price rises to a certain level above book value (this makes the offering accretive).

        The underwriters have to price the new shares under the last current offering price in order to insure that they can sell them. I suspect that when word gets out that the underwriters are going to do an offering, hedge funds and the like, start shorting the shares, which further drives the price down (anyone who thinks this news is secret and not leaked out, has never worked with Wall Street firms). Then once the offering price is announced, the market price on the next day will typically decline further. This may be caused by (i) people selling because they fear dilution and/or (ii) stop orders being triggered by the lower pricing of the secondary offering. Usually when that selling is absorbed, the price rebounds.

      • not common for a stock to trade more than $1 below the secondary offering this case it can be eplained as follows 418.34 less commission and other fees give the company a net of about 417.90 per share...then there is a $1 divvie due these new share holders in just a few weeks so some of the funds can be set aside according to the prospectus for such purposes....take about$1 of the remaining $18 and you get $17 net which is what the company will actually have left after cost and outgoing divvie on money which at best will only be at work for about one month during the quarter..............get real!!

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