CYS Secondary Impact Almost Unnoticed (CYS)

CYS Investments, Inc. (NYSE: CYS) is down on a secondary offering today but it is actually holding up better than the headline may have led us to believe.  The company is a  specialty finance company taxed as a REIT that invests with leverage in residential mortgage-backed securities which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.  The REIT priced 25,000,000 shares of its common stock at $13.28 per share and the “use of proceeds is to buy more securities and for general corporate purposes.

Credit Suisse, Barclays Capital, Deutsche Bank Securities, UBS Securities, and BofA Merrill Lynch were the joint bookrunners for the offering.  Those underwriting firms were granted an overallotment option for 30 days to purchase up to an additional 3,750,000 shares of common stock.

The gross proceeds of the offering came to more than $330 million and that compares to a prior market cap of $1.1 billion.  With a 52-week trading range of $10.52 to $13.95, the REIT is down only 2.7% at $13.37.

Dividends fluctuate wildly for REITs but the most recent dividend paid gave an indicated yield of 14%. That high yield of course comes with a lot of risk, but Ben Bernanke’s outlook for exceptionally low rates lasting through at least 2014 sure gives these mortgage REITs more room to expect a low-rate environment.

JON C. OGG