Mortgage real estate investment trust (commonly known as
American Capital Agency Corp.
) - reported encouraging fourth-quarter 2013 results with its net
spread income per share of 76 cents, significantly exceeding the
Zacks Consensus Estimate of 63 cents. Results also compared
favorably with the prior-quarter figure of 61 cents.
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The company had shifted its focus on shorter maturity securities
and controlled leverage in mid 2013 amid volatility in the
interest rate. Towards the end of the year, the volatility
reduced and with increasing yields on MBS and a steeper yield
curve, the current return environment looks promising according
to the company.
American Capital Agency reported net interest income of $422
million in the reported quarter, exceeding the prior-quarter
figure of $413 million as well as the Zacks Consensus Estimate of
Behind the Headline Numbers
American Capital Agency reported an economic loss on common
equity for the quarter of 10.8% annualized. This compared with an
economic gain on common equity of 8.7% in the prior quarter. As
of Dec 31, 2014, the company's net book value per common share
was $23.93, down from $25.27 at the end of the prior quarter,
$25.51 as of Jun 30 and $28.93 as of Mar 31, 2013.
As of Dec 31, 2013, the company's investment portfolio aggregated
$68.2 billion of agency mortgage backed securities (MBS). This
included $2.3 billion of net long TBA (to-be-announced) mortgage
positions, at fair value, as well as $237 million of investments
in agency mortgage REIT equity securities.
As of that date, American Capital Agency's investment portfolio
included $65.2 billion of fixed-rate securities, $1.2 billion of
adjustable-rate securities and $1.8 billion of collateralized
mortgage obligations (CMOs).
Around $61.2 billion of the company's repurchase agreements were
utilized for financing acquisitions of agency securities, while
$2.3 billion was used to obtain U.S. Treasury securities. The
company's average leverage ratio and average "at risk" leverage
ratio for the fourth quarter was 7.6x and 7.5x, respectively.
During the reported quarter, the company's average asset yield on
its agency security portfolio was 2.82% (up 23 basis points
sequentially) and its average cost of funds was 1.25% (down 14
bps sequentially), resulting in an average net interest rate
spread of 1.57% (a sequential increase of 37 bps). The company's
average asset yield reported as of Dec 31, 2013 was 2.70%,
unchanged from Sep 30, 2013.
As of Dec 31, 2013, American Capital Agency had cash and cash
equivalents of $2.1 billion, nearly flat sequentially and down
from $2.4 billion at the prior-quarter end.
On Dec 18, 2013, the company declared a fourth-quarter dividend
on its common stock of 65 cents per share, reflecting nearly a
19% decline from the prior quarter. This was paid on Jan 28, 2014
to common stockholders of record as of Dec 31, 2013. As a matter
of fact, the company paid a total of $4.2 billion in common
dividends, or $27.61 per common share, since its initial public
offering in May 2008.
In the fourth quarter, American Capital Agency repurchased
approximately 28.2 million shares of its common stock,
representing 7% of its outstanding shares as of Sep 30, 2013, at
an average price of $20.82 per share, including expenses, and
aggregating around $586 million. With this, around 43.0 million
shares have been bought back for approximately $934 million since
the beginning of the buyback program in the fourth quarter of
Moreover, the company declared that the share buyback
authorization has been elevated to up to $2 billion from $1
billion for share buybacks since the inception of the program
through Dec 31, 2014. The company plans to buyback shares at a
time when the repurchase price is below its current net book
value per common share estimate.
American Capital Agency has taken measures to reposition its
portfolio to meet the current interest rate environment. The
company is also witnessing a recovery in book value with a
decrease in interest rates and the solid performance of agency
MBS in January. This looks encouraging for this Zacks Rank #2
American Capital Agency is externally managed and advised by
American Capital AGNC Management, LLC, an affiliate of
American Capital, Ltd.
Investors interested in the mREIT industry may also consider
Ares Commercial Real Estate Corporation
Blackstone Mortgage Trust, Inc.
). Both these stocks carry a Zacks Rank #2 (Buy).