Annaly Capital Slides on Secondary Offering

(Annaly Capital report updated with broker action and background of recent REIT offerings.)

NEW YORK ( TheStreet) -- Annaly Capital Management ( NLY) shares shed several points amid heavy volume Tuesday after the New York City-based real estate investment trust unveiled plans for a dilutive public offering of 75 million common shares.

Annaly Capital, a mortgage REIT, said it intends to use the money it raises to purchase mortgage-backed securities for its investment portfolio and for general corporate purposes. As of Sept. 30, Annaly Capital had roughly 622 million outstanding shares, so the offering represents an increase of 12.5%. In addition, underwriters will be able to sell an additional 11.25 million shares to cover over-allotments.

Annaly Capital shares shed 2.7% to $17.39 ahead of the closing bell Tuesday. Nearly 100 million shares were in play, compared with their average daily trading volume of 9.6 million.

In 2010, Annaly shares rose a little less than 3%. Real estate investment trusts pay out substantially all of their earnings in dividends, however, which typically keeps a lid on per share performance. For fiscal 2010, the company's declared dividends totaled $2.65 with the final quarterly dividend of the year of 64 cents slated to be paid on Jan. 27 to shareholders of record on Dec. 28.

That 64-cent dividend actually represented a 5.9% decrease from its prior payout of 68 cents, declared in September and paid in October.

Wall Street remained fairly bullish on Annaly, with 12 of the 16 analysts covering the stock at either strong buy (5) or buy (7), with the remainder at hold. The analysts' median 12-month price target sits at $18.75.

Wunderlich Securities analyst Merrill Ross maintained a buy rating and $18 price target on Annaly following the announcement of its secondary offering. Ross also raised his 2011 earnings estimate to $2.54 per share from $2.50 per share.

The analyst said he believes Annaly will use half of the raised capital to boost its portfolio and earnings momentum, while the other half can be viewed as a defensive move against 2010 year-end interest rate swaps.

Analysts from Deutsche Bank reiterated a buy rating on Annaly in October, setting a price target of $20.

Annaly's secondary offering marks its second since last summer.

In July of last year Annaly Capital offered 60 million common shares in an effort to raise $1.1 billion to fund the purchase of mortgage-backed securities.

Elsewhere in REIT offerings, HCP ( HCP), a REIT that serves the healthcare industry, recently completed a secondary offering of 46 million common shares priced at $32 a piece, including 6 million shares to be sold to the underwriters to cover the over-allotment options.

HCP had previously said it would offer 31 million shares, but strong investor demand led the medical REIT to up its offering.

It raised around $1.47 billion, funds it will use along with cash on hand to finance its $6.1 billion acquisition of privately owned HCR ManorCare. The acquisition of 338 post-acute, skilled nursing and assisted living facilities was inked in mid-December.

HCP shares lost 0.9% to $37.06 on Tuesday.

American Capital Agency ( AGNC) said in early December it agreed to sell 8 million of its common shares in a secondary offering to raise $219 million, plus an option for an additional 1.2 million shares to cover overallotments.

AGNC said it intends to use the capital to acquire additional agency securities as market conditions warrant and for general corporate purposes.

American Capital shares were 1% lower at $28.40 Tuesday afternoon.

Stocks in the real estate investment trust sector outperformed the S&P 500 in 2010 and are expected to deliver 9% to 11% in total returns in 2011, according to analysts at Keefe, Bruyette & Woods.

"REITs are back on offense and all eyes are on growth," said KBW's Sheila McGrath, "growth prospects for core portfolios, growth from acquisitions and growth in dividends."

Morningstar ( MORN) noted that REITs have been catching on with a number of exchange-traded fund investors who consider them as potential hedges against inflation. The investment research firm pointed to inflows of $312 million to the iShares Dow Jones U.S. Real Estate ( IYR), and $371 million of net inflows to the Vanguard REIT Index ( VNQ) in the third quarter as evidence of the growing interest in REITs.

-- Written by Miriam Marcus Reimer in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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