REIT CEO

 

REIT CEO recommends Brinson Patrick’s DOCS® ATM financing facility for its control, flexibility, discretion and ability to provide just-in-time capital with minimal dilution

Capstead Mortgage (NYSE: CMO) is a self-managed real estate investment trust (REIT) established in 1985. The Dallas, Texas-based company makes leveraged investments in single-family, residential adjustable-rate mortgages (“ARM”) securities issued and backed by government agencies such as Fannie Mae, Freddie Mac and Ginnie Mae. Capstead typically funds its investment activities through short-term borrowings or equity offerings.

While the company has embarked on big equity offerings to raise large amounts of capital, Capstead President and CEO Andrew F. Jacobs says that these are not always the right solution to raising money, as they involve a lot of executive time and require the company to issue the shares at a discount to the pre-offering announcement price, limiting accretion in book value from the capital raise. “A $100 million equity offering involves numerous discussions, road shows, phone calls and a lot of legal time,” Jacobs says. “Plus we’ve got to use the money right away. If not, the cash may be underutilized for a few months or more, which is not efficient for our existing shareholders.”

The decision to use Brinson Patrick Securities Corporation

For nearly 20 years, Capstead has been utilizing “at the market” or ATM offering programs that provide an efficient means of raising equity capital over time, by allowing a company to tap into the existing secondary market for its shares on an as-and-when-needed basis. Under an ATM offering program, an exchange-listed company incrementally sells newly issued shares into the trading market through a designated broker-dealer at prevailing market prices, rather than via a traditional underwritten offering of a fixed number of shares at a fixed price all at once. Capstead was one of the first companies to do these types of transactions in the early 90s and Jacobs began speaking at conferences about how effective the ATM instrument could be for publicly traded firms.

“It was at one of these conferences in the late 90s that I met one of the executives from Brinson Patrick,” says Jacobs. “I liked that ATMs were the primary focus of Brinson Patrick.” Capstead became one of the firm’s earliest clients because of Brinson Patrick Securities Corporation’s exclusive focus of working with publicly traded firms looking to efficiently raise capital. Their DOCS® (Dynamic Offering of Common Stock) ATM financing facility is a low-profile, capital raising method which is typically less expensive and more flexible than other types of offerings, and in most instances results in higher book value accretion to existing shareholders than other financing options.

In 2000, Capstead began using Brinson Patrick’s DOCS® ATM offering. “The experts at Brinson Patrick are extremely stealthy in what they do,” says Jacobs. “The market doesn’t even know they’re there. They do very small transactions and they do a lot of them. I’ve seen other firms do five or ten transactions a day in much larger blocks. With such larger block sizes, I would be concerned whether the program is in fact stealthy. Overall, I believe other companies don’t spend the time to execute the small, average trade because it’s too time consuming and isn’t as profitable to the firm.”

Capstead likes that the DOCS® offering can raise exactly what they need, when they need it. “Using the DOCS® ATM financing facility from Brinson Patrick, we can better time the raising of the money,” Jacobs says. “We can raise it based on when we will need it. It fits the flow of purchases of assets. Another unique feature is if this has been a good week and we buy a lot of assets, I can ramp up the program and raise more money. It’s that flexible.”

The Results

For more than a decade, Capstead has been a client of Brinson Patrick. “Brinson Patrick’s DOCS® ATM financing facility gives me exactly what I want it to give me,” says Jacobs. “I’m a big fan of ATMs. Based on our market cap and daily volume we can do up to $60 to $80 million a quarter with this type of program. An ATM provides just-in-time capital, meaning the capital raised matches up with the timing of asset purchases. Thanks to our ATM, the typical equity dilution from raising capital in the traditional way is effectively eliminated.”

After 10 years of doing at-the-market offerings with Brinson Patrick, Jacobs says he knows and trusts the way the team at Brinson Patrick thinks. A major factor of that trust is the constant communication Brinson Patrick provides including extensive reporting. “I know they issue the shares in a stealthy way, and I count on the fact that we have such complete control,” he says. “They tell us what we need to know and they do exactly what we want them to do. It’s a true partnership.”

The experts at Brinson Patrick are extremely stealthy in what they do. The market doesn’t even know they’re there. They do very small transactions and they do a lot of them…I believe other companies don’t spend the time to execute the small, average trade because it’s too time consuming and isn’t as profitable to the firm.”

Andrew F. Jacobs, President and Chief Executive Officer,
Capstead Mortgage

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