Annaly Capital Management (NLY), one of the largest mortgage real estate investment trusts, announced a public offering of 100,000,000 shares of its common stock, notes Todd Shaver, growth and income specialist and editor of Bull Market Report.
The offering was priced at $6.45 per share, with expected gross proceeds of $645 million less fees. The company granted its underwriters a 30-day option to purchase an additional 15 million shares in connection with the offering which will raise another $100 million less fees.
The company plans to use the proceeds from this offering to fund acquisitions of various assets under its capital allocation policy. This includes further diversification of its agency and residential credit assets towards Agency MBS pools, to-be-announced forward contracts, and mortgage servicing rights, which is all the rage right now, with the rising high interest rate monetary environment.
As often seen during secondary offerings, the stock fell by 3%, as existing investors saw their current positions diluted by the same amount. However, contrary to conventional wisdom, secondaries signal strength and a proactive management, working to unlock value by paying off debts and funding growth opportunities, and making acquisitions.
Secondaries help improve the liquidity position and the debt-to-equity ratio of a company, leading to ratings upgrades which can bring about a higher stock price in the future. Annaly has remained under pressure for the better part of last year, which is in-line with most mREITs in the face of the macro headwinds of a flatter yield curve and higher rates.
The new capital infusion will lend the company plenty of resilience and maneuverability, allowing it to make the most of new opportunities coming its way, while further bolstering its balance sheet.
Annaly remains an integral part of our High Yield portfolio. Our current Sell Price of $7, is lowered today to $6, and our Target of $11 is lowered to $9. The stock remains near its 52-week low at $6.32.
With a yield of 13%, this bottomed-out pick represents a stellar opportunity at the onset of a new credit cycle for investors to generate steady current income, along with capital growth. Down by over 33% since its peak last year, we expect a move higher in the coming months.
