Capstead Mortgage Corp. (CMO, Financial) filed Quarterly Report for the period ended 2009-06-30.
CAPSTEAD MORTGAGE CORP. is a REIT which operates as a mortgage conduit purchasing and securitizing single-family residential mortgage loans. In addition Co. has a mortgage servicing unit that functions as the primary mortgage servicer for mortgage loans and mortgage servicing rights acquired by Co. Capstead Mortgage Corp. has a market cap of $856.5 million; its shares were traded at around $13.49 with a P/E ratio of 6.7 and P/S ratio of 2.1. The dividend yield of Capstead Mortgage Corp. stocks is 17.2%. Capstead Mortgage Corp. had an annual average earning growth of 9.7% over the past 5 years.
Capstead earned $43 million and $85 million during the quarter and six months ended June 30, 2009 compared to $37 million and $67 million during the same periods in 2008 primarily as a result of increased total financing spreads (the difference between yields on the Companys interest-earning assets and rates on interest-bearing liabilities). Total financing spreads averaged 231 basis points during the current quarter, compared to 193 basis points during the same period in 2008, benefiting from significantly lower borrowing rates primarily attributable to lower short-term interest rates.
During the quarter and six months ended June 30, 2009 Capstead issued 456,000 and 687,000 common shares at average prices of $12.79 and $12.42 per share ($12.64 and $12.28 per share, net of expenses), respectively, under the Companys continuous offering program. These issuances raised $6 million and $8 million in new common equity capital, after underwriting discounts and offering expenses, respectively. Subsequent to quarter-end (through August 6, 2009) the Company has raised an additional $15 million under this program through the issuance of 1.2 million common shares at an average price of $12.93 per share ($12.80 per share, net of expenses). The Company may raise more capital in future periods, subject to market conditions and blackout periods associated with the dissemination of earnings and dividend announcements and other important company-specific news.
Managing a large portfolio of residential mortgage investments consisting primarily of ARM Agency Securities is the core focus of Capsteads investment strategy. As of June 30, 2009, residential mortgage investments totaled $7.56 billion, consisting of over 99% ARM Agency Securities. This compares with residential mortgage investments totaling $7.46 billion as of December 31, 2008. Non-agency-guaranteed residential mortgage investments held by Capstead were limited to $17 million as of June 30, 2009 consisting of well-seasoned, low loan-to-value mortgage loans remaining from a conduit operation operated by the Company in the early 1990s. The Company holds the related credit risk associated with $13 million of these loans, and the remainder of these investments are held as collateral for structured financings whereby the related credit risk is borne by the securitizations bondholders.
In response to deteriorating market conditions experienced the latter part of 2007 and in 2008, Capstead reduced its portfolio leverage during those periods by raising a significant amount of new common equity capital, selling a limited amount of Agency Securities and, when appropriate, curtailing the replacement of portfolio runoff. In addition, the Company increased the number of lending counterparties with which it uses on a regular basis. During 2009, the Company resumed its usual practice of replacing portfolio runoff and experienced a significant increase in the fair value of its portfolio. Year-to-date, acquisitions (consisting primarily of current-reset ARM Agency Securities) totaled $599 million in principal amount with a net WAC of 4.58% and a purchase yield of 3.17%, while portfolio runoff totaled $617 million in principal amount. Combined with a $127 million improvement in pricing of Agency Securities classified as available-for-sale, the Companys holdings of residential mortgage investments increased $106 million in 2009. Total portfolio runoff declined to an average annualized rate of 16.5% during the second quarter compared to an average rate of 18.4% throughout 2008. This reflects the pronounced contraction seen in residential mortgage lending, largely because of national trends toward declining home values and tighter mortgage loan underwriting standards. Since Capstead typically purchases investments at a premium to the assets unpaid principal balance, high levels of mortgage prepayments can put downward pressure on ARM security yields because the level of mortgage prepayments impacts how quickly investment premiums are written off against earnings as portfolio yield adjustments.
As of June 30, 2009, Capsteads remaining investments in commercial real estate-related assets consisted of $6 million in subordinated loans to a Dallas, Texas-based townhome developer expected to be repaid primarily through unit sales, and $38 million in subordinated loans collateralized by the Four Seasons hotel in Nevis, West Indies that matured October 9, 2008 and one week later was damaged by Hurricane Omar. Included in receivables and other assets is $808,000 in accrued interest associated with these investments. The Nevis property has wind and business interruption insurance coverage, which together with related reserves, should be sufficient to repair the hotel for reopening in early 2010. In January 2009 the Company filed suit against the loan servicer and a lien holder subordinate to Capstead, to enforce its rights under the loan documents including, among other items, the right to be named the controlling holder representing the lending group in reaching a resolution for the financing of this property.
Read the The complete ReportCMO is in the portfolios of Arnold Van Den Berg of Century Management.
CAPSTEAD MORTGAGE CORP. is a REIT which operates as a mortgage conduit purchasing and securitizing single-family residential mortgage loans. In addition Co. has a mortgage servicing unit that functions as the primary mortgage servicer for mortgage loans and mortgage servicing rights acquired by Co. Capstead Mortgage Corp. has a market cap of $856.5 million; its shares were traded at around $13.49 with a P/E ratio of 6.7 and P/S ratio of 2.1. The dividend yield of Capstead Mortgage Corp. stocks is 17.2%. Capstead Mortgage Corp. had an annual average earning growth of 9.7% over the past 5 years.
Highlight of Business Operations:
Capstead typically finances its investments with its long-term investment capital, which consists of common stockholders equity together with $179 million of perpetual preferred stockholders equity (recorded amount) and $100 million of long-term unsecured borrowings (net of related investments in statutory trusts) supported by its borrowings under repurchase arrangements with commercial banks and other financial institutions. During the six months ended June 30, 2009, the Companys long-term investment capital increased by $156 million to $1.02 billion, primarily because of increases in the fair value of the Companys holdings of Agency Securities. Pricing for Agency Securities has benefited from efforts by the federal government to support lower mortgage interest rates and improve overall liquidity in the residential mortgage market. This contributed to a decline in portfolio leverage (borrowings under repurchase arrangements divided by long-term investment capital) from 7.85 to one at year-end to 6.63 to one at the end of the second quarter. The Companys mortgage securities and similar investments portfolio totaled $7.61 billion at June 30, 2009, an increase of $106 million from year-end.Capstead earned $43 million and $85 million during the quarter and six months ended June 30, 2009 compared to $37 million and $67 million during the same periods in 2008 primarily as a result of increased total financing spreads (the difference between yields on the Companys interest-earning assets and rates on interest-bearing liabilities). Total financing spreads averaged 231 basis points during the current quarter, compared to 193 basis points during the same period in 2008, benefiting from significantly lower borrowing rates primarily attributable to lower short-term interest rates.
During the quarter and six months ended June 30, 2009 Capstead issued 456,000 and 687,000 common shares at average prices of $12.79 and $12.42 per share ($12.64 and $12.28 per share, net of expenses), respectively, under the Companys continuous offering program. These issuances raised $6 million and $8 million in new common equity capital, after underwriting discounts and offering expenses, respectively. Subsequent to quarter-end (through August 6, 2009) the Company has raised an additional $15 million under this program through the issuance of 1.2 million common shares at an average price of $12.93 per share ($12.80 per share, net of expenses). The Company may raise more capital in future periods, subject to market conditions and blackout periods associated with the dissemination of earnings and dividend announcements and other important company-specific news.
Managing a large portfolio of residential mortgage investments consisting primarily of ARM Agency Securities is the core focus of Capsteads investment strategy. As of June 30, 2009, residential mortgage investments totaled $7.56 billion, consisting of over 99% ARM Agency Securities. This compares with residential mortgage investments totaling $7.46 billion as of December 31, 2008. Non-agency-guaranteed residential mortgage investments held by Capstead were limited to $17 million as of June 30, 2009 consisting of well-seasoned, low loan-to-value mortgage loans remaining from a conduit operation operated by the Company in the early 1990s. The Company holds the related credit risk associated with $13 million of these loans, and the remainder of these investments are held as collateral for structured financings whereby the related credit risk is borne by the securitizations bondholders.
In response to deteriorating market conditions experienced the latter part of 2007 and in 2008, Capstead reduced its portfolio leverage during those periods by raising a significant amount of new common equity capital, selling a limited amount of Agency Securities and, when appropriate, curtailing the replacement of portfolio runoff. In addition, the Company increased the number of lending counterparties with which it uses on a regular basis. During 2009, the Company resumed its usual practice of replacing portfolio runoff and experienced a significant increase in the fair value of its portfolio. Year-to-date, acquisitions (consisting primarily of current-reset ARM Agency Securities) totaled $599 million in principal amount with a net WAC of 4.58% and a purchase yield of 3.17%, while portfolio runoff totaled $617 million in principal amount. Combined with a $127 million improvement in pricing of Agency Securities classified as available-for-sale, the Companys holdings of residential mortgage investments increased $106 million in 2009. Total portfolio runoff declined to an average annualized rate of 16.5% during the second quarter compared to an average rate of 18.4% throughout 2008. This reflects the pronounced contraction seen in residential mortgage lending, largely because of national trends toward declining home values and tighter mortgage loan underwriting standards. Since Capstead typically purchases investments at a premium to the assets unpaid principal balance, high levels of mortgage prepayments can put downward pressure on ARM security yields because the level of mortgage prepayments impacts how quickly investment premiums are written off against earnings as portfolio yield adjustments.
As of June 30, 2009, Capsteads remaining investments in commercial real estate-related assets consisted of $6 million in subordinated loans to a Dallas, Texas-based townhome developer expected to be repaid primarily through unit sales, and $38 million in subordinated loans collateralized by the Four Seasons hotel in Nevis, West Indies that matured October 9, 2008 and one week later was damaged by Hurricane Omar. Included in receivables and other assets is $808,000 in accrued interest associated with these investments. The Nevis property has wind and business interruption insurance coverage, which together with related reserves, should be sufficient to repair the hotel for reopening in early 2010. In January 2009 the Company filed suit against the loan servicer and a lien holder subordinate to Capstead, to enforce its rights under the loan documents including, among other items, the right to be named the controlling holder representing the lending group in reaching a resolution for the financing of this property.
Read the The complete ReportCMO is in the portfolios of Arnold Van Den Berg of Century Management.
