The Wall Street Journal-20080128-These REITs Score In Mortgage Malaise

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These REITs Score In Mortgage Malaise

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Some real-estate investment trusts that invest in mortgage-backed securities are raising billions of dollars through public offerings, despite the problems plaguing the housing and financial sectors.

The pace and size of these offerings have grown in recent months -- and the stock prices of this select group of companies has kept rising.

MFA Mortgage Investments Inc., Anworth Mortgage Asset Corp. and Annaly Capital Management Inc. focus the majority of their portfolios on so-called "agency" mortgages, or those that are guaranteed by the government-sponsored mortgage companies Fannie Mae and Freddie Mac, rather than riskier subprime mortgages.

MFA alone has raised $500 million in four share sales since September. Anworth has raised $185 million in two sales since November, while Annaly, which tends to sell stock about once a quarter, has raised $3.1 billion in four offerings since March 2007.

Demand for recent offerings was so strong that the companies sold far more shares than originally planned. MFA sold 25 million shares on Jan. 16, rather than the 20 million shares planned, while Annaly's decision to sell 40 million shares last week swelled to 51 million shares overnight.

All three firms declined to comment, citing quiet periods surrounding the stock sales.

The three also have experienced a gradual but steady rise in their stock prices since August. While stock offerings are commonly considered dilutive to current shareholders, in the case of mortgage REITs, the cash raised is deployed to increase earnings.

In the case of Annaly, the year's share sales have been accretive to shareholders. It's unknown how accretive the share sales will be for Anworth or MFA because their share sales were in the fourth quarter and they haven't reported earnings for that period, but analysts are predicting big earnings increases in 2008.

The dividends these three stocks pay out on their common shares have risen in recent months. MFA Mortgage and Anworth recorded third- quarter losses as they sold off some mortgage holdings, while Annaly posted gains from sales on its portfolio.

"It seems like investors keep cheering them on," said Ben Holmes, publisher of the research site Morningnotes.com. "They're raising staggering amounts of cash."

Mortgage REITs use the capital they raise -- leveraged with borrowings -- to acquire more mortgage-backed securities.