American Capital mREIT: $2 Below Fair Value
What could be better than a double digit return on a security? Low interest rates have been a boon for mREITs. That is, residential mortgage real estate investment trusts (mREITs). Equities that are classified as mREITs often hold non-agency and agency mortgages. An mREIT with agency securities has government sponsored enterprise (GSE) backed mortgages for which the principal and interest payments are guaranteed by the United States government.American Capital Agency (AGNC) is an agency mREIT. AGNC purchases residential mortgage pass-through securities and collateralized mortgage obligations (CMOs) from GSEs such as, Fannie Mae (FNMA.OB) (the Federal National Mortgage Association), Freddie Mac (FMCC.OB) (the Federal National Mortgage Association) and Ginnie Mae (the Government National Mortgage Association). AGNC is externally managed by American Capital AGNC Management, LLC, and an affiliate of American Capital, Ltd (“American Capital”). The company was founded on January 7, 2008 and headquarters are located in Bethesda, MD.
What Can Go Right with mREITs Like AGNC?
To be a REIT, AGNC must annually distribute 90% of taxable net income to shareholders. According to the AGNC 2011 Annual Report, shareholders received an economic return of 37%, that’s dividends plus the change in book value, measured against beginning Net Asset Value. This was $5.60 per share in dividends and an increase in NAV of $3.47 per share. Details about AGNC’s financial performance are provided in the company’s easy-to-understand Investor Fact Sheet.
The primary sources of funds are borrowings under master repurchase agreements equity offerings, asset sales, and monthly principal and interest payments on the investment portfolio.To continue reading, click here.