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Home appraisal’s ugly history and uncertain future

This is Part I of a deep dive into the home appraisal industry. Today we explore the origins of the appraisal industry and its current lack of diversity.

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Massive REIT Annaly Capital set to get even larger

Hatteras Financial deal makes for the biggest REIT around

In a move that creates a massive mortgage real estate investment trust, Annaly Capital Management announced Monday it plans to acquire Hatteras Financial Corp. for $1.5 billion.

According to a release from Annaly, the deal will make the company the “largest, most liquid and diversified mortgage REIT in the world.”

That is, as diverse as a mortgage REIT can get. Mortgage REITs enjoy certain tax benefits, but also face restrictions on where investments may be made. This makes their DNA somewhat different than, say, an equity REIT. Here's a pretty good explanation

Under the terms of the this deal, Annaly will acquire Hatteras for consideration to be paid in cash and shares of Annaly common stock, which values Hatteras at $15.85 per share of Hatteras common stock based upon the closing price of Annaly common stock on April 8, 2016.

Annaly closed Friday’s trading at a price of $10.41 per share.

Hatteras, on the other hand, closed Friday’s trading at a price of $14.26 per share.

According to Annaly, the value of the deal represents a premium of approximately 24% to the 60-day volume-weighted average price of Hatteras common stock ending on April 8, 2016 and a multiple of 0.85x Hatteras’ estimated book value per share as of February 29, 2016.

“This strategic transaction represents a unique and sizeable value creation opportunity for our shareholders,” said Kevin Keyes, CEO and president of Annaly. “With the acquisition of Hatteras, we significantly grow our diversified portfolio and broaden our investment options, further fortifying Annaly’s position as the market leading mortgage REIT.”

According to a release from Annaly, the deal will expand and “further diversify” its investment portfolio by adding Hatteras’ portfolio, which includes agency residential mortgage-backed securities, residential whole loans and mortgage servicing rights, into its current portfolio, which includes agency and non-agency MBS, residential whole loans, mortgage servicing rights, commercial real estate debt and equity and corporate credit.

The companies said that as part of the deal, a wholly-owned subsidiary of Annaly will begin an exchange offer to acquire all outstanding shares of Hatteras common stock.

For each share of Hatteras common stock validly tendered in the exchange offer or converted pursuant to the second-step merger, Hatteras shareholders may elect to receive: (a) $5.55 in cash and 0.9894 shares of Annaly common stock; (b) $15.85 in cash (the “cash consideration option”); or (c) 1.5226 shares of Annaly common stock (the “stock consideration option”).

The companies said that Hatteras shareholders who elect the cash consideration option or stock consideration option will be subject to proration, in each of the exchange offer and the subsequent second step merger, so that the aggregate consideration will consist of approximately 65% of Annaly’s common stock and approximately 35% in cash.

The companies said that each company’s board approved the terms of the merger agreement, and the deal is expected to close by end of third quarter of 2016.

“We are excited by the opportunity to join the Annaly platform and believe our diversification efforts are greatly enhanced by the industry-leading business Annaly has built,” Michael Hough, chairman and CEO of Hatteras, said. “The complementary nature of this transaction should enhance the risk-adjusted value proposition we’ve always strived for.”

Wellington Denahan, chairman of Annaly, added: “We are tremendously excited to announce this partnership today. Both Hatteras and Annaly are seasoned veterans in the sector, and we are confident this acquisition strengthens our ability to deliver superior returns to our shareholders over the long-term.”

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