We've seen some reasonably solid results from players in the mortgage REIT sector recently. Amid a volatile third-quarter environment, Annaly Capital (NYSE: NLY ) reported only amild year-over-year downtick in its interest-rate spread, as did American Capital Agency (Nasdaq: AGNC ) , while CYS Investments (NYSE: CYS ) notched a mild uptick.
But the results at Invesco Mortgage (NYSE: IVR ) look less impressive. The company's interest-rate spread dropped to 2.39% in the latest quarter, down sequentially from 2.75%. Last year's third quarter saw the company earn a hearty 4.11%. That's some major shrinkage.
Here's how some other mortgage REITs fared in the latest quarter, along with the numbers from prior quarters.
Interest-Rate Spread Q3 2011
Interest-Rate Spread Q2 2011
Interest-Rate Spread Q2 2010
|American Capital Agency||2.14%||2.46%||2.21%|
|Armour Residential (NYSE: ARR )||TBA||2.36%||2.88%|
Source: S&P Capital IQ.
Every company slipped sequentially, but Invesco also took a major tumble from the year-ago period. We'll find out Armour's numbers next week, so stay tuned.
Another troubling sign: Invesco issued new shares twice in the past few months at or below book value. In late June, the company reported a book value per share of $20.63 as of May 31. The company then issued 17 million shares at $20.15 on June 20. Book value at the end of June had declined further, to $19.34.
In August, Invesco reported a book value of $18.39 as of July 31. Then the company issued 20 million shares at about that price on Aug. 23.
The decline in book value per share is troubling when players such as Annaly and American Capital Agency have managed to increase book value over the past few quarters. Peer Chimera (NYSE: CIM ) has seen its book value per share fall the last two quarters, from $3.59 per share to $3.35 in the latest quarter.
Invesco defended its secondary offerings by saying that it had found "high-quality assets at attractive levels," but managers face a headwind for creating value when they offer shares below book value.
Also troubling is the substantial reduction in the dividend, from $0.97 per share in Q2 to $0.80 in the latest quarter. Mortgage REITs will offer fluctuating dividends based on their quarter-to-quarter performance, but such a cut is hard to swallow. Annaly, probably the best operator in the space, has seen its dividend fluctuate between $0.62 and $0.68 per share over the past six quarters.
So with its numbers that seem worse than the what other peers are putting up, I'm wary of what Invesco's results show -- not so much for the mortgage REIT sector as a whole, but for the company itself.