Annaly, Chimera And CreXus May Soon Combine Into One Diversified Mortgage REIT

Annaly Capital Management Inc. recently agreed to purchase the shares of CreXus Investment Corp. (CXS) it doesn't already own for about $872 million, valuing the company at $996 million. Annaly owns 12.4 percent of CreXus and the commercial mREIT is managed by FIDAC, a wholly-owned subsidiary of Annaly. Chimera is similarly managed by FIDAC and Annaly has a similar ownership interest in it. Crexus was to continue pursuing other deals until March 16, so it should update the public on the status of Annaly's bid this week.

Also, last week Chimera Investment Corp. (CIM) filed its 2011 10-K annual report. The mortgage REIT had not filed any reports in several quarters, and in February, the New York Stock Exchange (NYSE) gave the company a third and final extension for continued listing and trading of the company's stock on its exchange. Chimera is yet to file any results for 2012, but is expected to do so within the next two months. After those reports are filed, and provided Annaly successfully acquires CreXus, a bid for Chimera appears of ever growing probability.

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American Capital Agency's Issues Another Secondary: 1st of 2013 (2 in 2012 & 4 in 2011)

Last week, American Capital Agency Corp. (AGNC) announced and priced a secondary stock offering of 50 million shares. The offering should raise about $1.58 billion, before expenses. Additionally, the Company granted the underwriters an option for 30 days to acquire up to an additional 7.5 millions shares, which they will likely do. The offering is expected to close on March 5, 2013.

Last year, AGNC had two secondary stock offerings, and the company had four in 2011. These secondaries have helped AGNC balloon in size. It is now the second largest publicly traded mREIT, and after this secondary is completed it will have a market valuation of around $12.3 billion, making it around ten percent smaller than Annaly Capital Management (NLY), the largest mREIT. If AGNC continues to issue secondaries and/or outperforms Annaly from here, it may become the largest mREIT some time this year.

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Chimera Receives Its Final NYSE Filing Extension

Last week, Chimera Investment Corporation (CIM) announced that the New York Stock Exchange (NYSE) gave the company a final 30-day extension for continued listing and trading of the company's stock on the exchange. This final extension provides the company until March 15, 2013, to file its 2011 annual report with the Securities and Exchange Commission (SEC). This is the third extension that Chimera has received. In September of 2012, the company obtained a four-month extension, until January 15, 2013, and a subsequent one-month extension to February 15, 2013, while its report should have been filed in about February of 2011.

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Annaly's Prepayment Pressure Continues And A Dividend Cut Is Likely, But Its Plan Is Compelling

Last week, Annaly Capital Management (NLY)

reported GAAP net income for the fourth quarter of 2012 of $700.5 million or $0.70 per share, compared to $445.6 million or $0.46 per share for the same quarter the prior year, and $224.8 million or $0.22 per average common share for Q3 of 2012. The Company also reported that it had a book value of $15.85 per share at the end of 2012.

Without the effect of the unrealized gains and losses on agency backed interest-only residential mortgage-backed securities ("RMBSs"), interest rate swaps and the extinguishing of some convertible senior notes, net income was $465.1 million or $0.46 per share, compared to $525.3 million or $0.54 per share for Q4 of 2011, and $449.8 million or $0.45 for Q3 of 2012.

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Annaly Furthers Its Pursuit Of Crexus And Its Commercial Paper

On Januray 31, Annaly Capital Management Inc. (NLY), the largest mortgage real estate investment trust, or mREIT, reported that it agreed to purchase the rest of Crexus Investment Corp. (CXS) for about $872 million. Annaly already owns 12.4 percent of Crexus and will pay $13 per share in cash for the remaining stock, valuing the company at $996 million. The terms of the agreement allow Crexus to pursue alternatives to the deal though March 16, and Crexus has indicated that a special committee and independent advisers will "actively solicit" other options.

In November, Annaly bid $12.50 a share for CXS, a commercial mREIT as part of Annaly's new plan to broaden its business in the wake of Federal Reserve purchases of government-backed residential mortgage debt, which have caused agency security yields to decline and prepayment rates to increase. 

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