cheap longchamp should be sooner rather than later.
after announcing secondary
The secondary is not dilutive, it’s accretive since the funds are used to purchase debt securities which are income producing and can then be used to increase leverage. Thanks!
TO: macronautYou stated that the NYMT was accretive, not dilutive. While I initially thought it was counter intuitive I continued to mull over your words and try to think of a way it was accretive. I conjured up some ways a secondary offering might be accretive but they were pretty farfetched. So I went to Investopedia which says:
"Dilutive stock is any security that dilutes the ownership percentage of current shareholders that is, any security that does not have some sort of embedded anti dilution provision. The reason why dilutive stock has such negative connotations is quite simple: a company’s shareholders are its owners, and anything that decreases an investor’s level of ownership also decreases the value of the investor’s holdings.
Ownership can be diluted in a number of different ways:
1. Secondary Offerings: For example, if a company had a total of 100 shares on the market and its management decided to issue another 100 stocks, then the owners of the first 100 stocks would face a 50% dilution factor. For a real life example of this scenario, consider the secondary offering made by Google Inc. in the fall of 2005. The company decided to issue more than 14 million shares of common stock to raise money for "general corporate purposes", and it diluted then current holdings.
2. Convertible Debt/Convertible Equity: When a company issues convertible debt, it means that debtholders who choose to convert their securities into shares will dilute current shareholders’ ownership when they convert. In many cases, convertible debt converts to common stock at some sort of preferential conversion ratio. For example, each $1,000 of convertible debt may convert to 100 shares of common stock, thus decreasing current stockholders’ total ownership.
Convertible equity is often called convertible preferred stock. These kinds of shares usually convert to common stock on some kind of preferential ratio for example, each convertible preferred stock may convert to 10 shares of common stock, thus also diluting ownership percentages of the common stockholders.
3. Warrants, Rights, Options and other claims on security: When exercised, these derivatives are exchanged for shares of common stock that are issued by the company to its holders. Information about dilutive stock, options, warrants, rights and convertible debt and equity can be found in a company’s annual filings."
But I’m still willing to consider additional info from you supporting what you said. I’m eager to learn fine pointsDon:
This is not an issue, with respect to mReits, that adheres to a very precise, Investopedia definition. At least in my opinion, for what it’s worth. (I think the third glass of merlot certainly had a dilutive effect on my powers of reason when I wrote that comment!) Yes, secondary issues of common stock are technically going to dilute the ownership, but if the proceeds are being used to increase the capital base of the mReit, and in this case with the purchase of a block of mortgage debt yielding over 6%, , the end result is that the new capital is going to be accretive to the EPS and ultimately to the dividend payout. The issue of the dilution/accretion effect of secondaries for mReits has been discussed here by people with far superior technical knowledge and analytical skills than I currently possess. As I have always understood and as explained in your research posted above, any offerings inevitably dilutes current shareholders value. There is no way around it. The quality of the company’s shares held, such as NYMT, does make a difference on how long it will take to recover and return to pre announcement selloff. Adjustments will be required for future quarterly reporting and analyst expectations as the share count changes dramatically. For example, if a company was expected to report 10/share and does an offering equal to outstanding shares, then expectantly the revision would be 5/share if not less when factoring in the cost of the offering. If NYMT avoided an offering, they were on track to reach $10 within 6 months and possibly increasing the payout. I didn’t have the time to respond to mac but I’m glad you did supportively.
macronaut: Thanks for responding. The News release by NYMT says the secondary will be part of the funds to purchase a pool of residential mortgage loans. The total amount of this pool isn’t stated. To the extent the income from the pool of mortgages is known to NYMT executives, that would suggest the management knows what the income will be. If the income is better than the rate being received on the bulk of their holdings, I can see where the secondary would be accretive. But the vagueness of the news release leaves that question up in the air. And their comment about how they’ll use the secondary if they don’t acquire the pool makes it sound like they haven’t nailed down their agreement with the holders of the pool’s securities. They state that this use could include for general working capitol purposes. To the extent the secondary is used for expenses other than income producing assets, it will be dilutive.
So I think we can say that no one except the NYMT insiders know what part of the secondary is likely to be accretive or dilutive.
For your convenience, here’s the second paragraph of NYMT’s news release.
"NYMT intends to use the net proceeds of this offering to fund a portion of the purchase price of a pool of residential mortgage loans. If such acquisition is not completed, NYMT intends to use the net proceeds to fund the acquisition of its targeted assets and for general working capital purposes. The offering is not contingent on the completion of the acquisition of the residential mortgage loan pool."Dilution or Accretive, that seems to be the question.
All offerings are diluting. How the funds are deployed will determine if the offerings will eventually become accretive. How well the quality of the deployed money also determines how long it will take to become a profitable venture, which in NYMT’s case and their management, should be sooner rather than later.
The only possible way an offering can be accretive without any dilution is if the money is deployed and NYMT receives instant revenue at the close of the deal for back payments equal to the value of the offering which will never happen.
I’m no expert and will never claim to be but I do know for sure that that if I have $100 and was splitting it with 3 others, we would end up with $25 each. But, if I was splitting it with nine other people, guess what my cut is?