At end of 2nd quarter IVR book value was $19.34. Then there was an offering at around $18.36 about two weeks ago. Now with dividend only 3 weeks away of maybe 70 to 90 cents, why isn't this stock a steal at these $17.00?
Can management be that bad?
Have the assets, mostly Agency, gone to hell?
IVR is being hit worse than the other MRiets in my opinion.
What am I missing? I'd like to pick some more up, but...
No, but it does get us down to around $16 or less. Less than share price today.
I went thru this in the credit crisis. The market is killing valuations, but, as an income investor, are these assets producing any less income? If you look in the 10Q, the cmbs are producing more income, as a percentage of the whole, than their percentage of book value. So, you can have situations where the income in still coming in, but book value is getting killed.
I don't really think that absent the new share offering, the real income on legacy shares would be reduced, but look at book value.
The real question, for me, is how is the new money being used. Is some of it being reserved for margin calls and not producing income. I don't really understand the margin issue. Or are they reserving some money just to have a cushion for these weird times. In retrospect, the offering seems wise to me. For protection and the purchase of assets at great yields. If these guys are great distressed asset types, then I wonder if they can purchases higher risk cmbs and make some cash, just like the pros did in the last crunch.
Too many moving parts.
I think you are correct as to the share count mechanism. I used the amount from the offering document, but they will be in existence for only about 1 month, so the denominator may only be around 100mm shares.
They have 115mm shares after the latest offering, so the hit would be 260/115 = $2.26 according to your math.
From $18+ at the time of the last offering, still doesn't get you into the low teens as you stated.
I wonder what the share count will be for Q3 book value calculations. Does the Q3 raise get a weighted calculation regarding percentage of time in existence in Q3? I am thinking about the demonimator used for that 260 million decline.
@entrophy - I've looked for real sources for non-agency and CMBS pricing, can you cite any?
Non-agency MBS are broken down into multiple classifications (ie. Prime performing, prime non-performing, sub-prime, ALT-A). From a Credit Suisse report I read today, the significant price drops are isolated to the highest risk non-agency categories (ie. sub-prime and alt-a and to a lesser extent prime non-performing).
While IVR hasn't provided detailed disclosure of their non-agency holdings, the have made it clear they their focus is on the lowest risk bonds.
BV will clearly be hit by swap pricing (IVR disclosed as much with the update along with the offering and swap pricing dropped further in August. They will also take BV hits on non-agency and CMBS, but I don't expect those to be severe based on the risk level the company focuses on.
Last on BV. From everything I can read via SEC filings, the BV impacts (especially those driven by the swap rate changes) are TEMPORARY. The hits are partially driven by the accounting treatment the company chose (and they even state same in the SEC filings).
The true costs of the swaps are expensed quarterly. The BV hits would reverse if swap rates increased. Worst case the BV impacts will "roll off" over time as the swap durations shorten.
I will try to extract some swap/hedge details from IVRs 10Q in a later post. It's clear from some of my comparative analysis that IVR accounts for the swaps different from some other mreits (which causes the BV impacts to appear worse than "peers").
Why not take a look at the balance sheet before you post?
"mostly" Agency isnt ALL AGENCY.
These guys have 3 1/2 BILLION in non Agency assets that were CRUSHED in August as the economy rolled over.
Sept looks worse (so far)
Your BV is NO WHERE NEAR 17 any more.
Do some work and you can figure it out.
PS: LONG postings that come down to where the dividend was in the past are about as much use as Last weeks weather forcast.
"ucanpickum" seems to have spotted the problem with the swaps costs. Thanks.
How long can that go on? We're at historic lows, hard to see it go lower. That's the risk. Book value target of $17 at end of 3rd quarter makes this an even bet to get your money back if your buying pre-divi and in low $16's.
Vast majority (70%)of assets are Agency per 2nd Qtr presentation.
Leverage on agency paper is 8-9 times vs 6 times for nly. It's overall leverage is lower only because its non agency paper requires a much bigger haircut. With interest rates falling, they are likely to continue to see NAV decline by over $1 just from losses on swaps. Same as last quarter. This will be reversed soon, but I expect NAV to decline to around $18 this Q.