REIT CFO continues to use Brinson Patrick’s DOCS® ATM financing facility for its efficiency, control, flexibilty and ability to raise capital as needed
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 EVP, Chief Financial Officer Phillip A. Reinsch 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. He also points out that due to factors outside one’s control, financing options can be limited. “For instance, we had significant liquidity constraints during the collapse of Bear Stearns during March of 2008,” Reinsch says. “To have done a more traditional offering while the entire market was contracting would have been very hard to do at a reasonable price.”
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 measured amounts of 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.
Capstead was introduced to Brinson Patrick when the boutique investment firm first went into business. They became one of the firm’s earliest clients because of Brinson Patrick’s exclusive focus of working with publicly traded firms looking to efficiently raise capital. Their DOCS® (Dynamic Offering of Common Stock) ATM 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. “A big benefit of the ATM is that you can control how aggressively you want to raise capital,” Reinsch says. “You can work with Brinson Patrick as to how aggressively you want them to be selling your shares into the market. It’s a very flexible program.” Reinsch says Capstead takes advantage of the fact that the ATM can raise exactly what they need, when they need it, providing just-in-time capital.
For more than a decade, Capstead has been a Brinson Patrick client, raising as much as $60 – $80 million a quarter with the DOCS® ATM. Reinsch says even though many big banks are now offering their versions of at-the-market offerings, Capstead is sticking with Brinson Patrick to execute this unique fundraising vehicle. “The bigger banks are coming out with similar ATM offers but they are not as cost efficient as Brinson Patrick and I doubt anyone can match the personalized customer service that Brinson Patrick provides,” Reinsch says.
Reinsch says at-the-market financing has become a valuable tool for REITs like Capstead, but points out that it doesn’t fit all fundraising needs. “If you need an immediate, large influx of capital relative to your market cap and daily volume, the ATM is not the instrument. The best thing about an ATM is you can deploy it over time rather than getting a big slug of capital that just sits there until you use it.”
After a decade of doing ATM equity offerings with Brinson Patrick, Reinsch says his team is always impressed by the constant communication and extensive reporting they receive. “At the end of the day, you can’t beat the efficiency of the program and you can’t beat the competence and customer service of Brinson Patrick.”