Apollo Residential Mortgage, Inc.  AMTG $20.00  10.0 million shares Underwriters: Morgan Stanley, Credit Suisse, J.P. Morgan Co-Managers:  JMP Securities, Nomura, Stifel Nicolaus Weisel, RBS Proposed trade date of 7/22   They are a Apollo-managed REIT recently formed to invest in residential mortgage assets.

 

Not a full write-up because of prospects and current competition. There are already much larger and more  established comps doing the same thing.

 

 

Apollo Residential Mortgage, Inc.    AMTG

 

Click here to view the prospectus.

http://www.sec.gov/Archives/edgar/data/1515980/000119312511187473/ds11a.htm

 

Apollo Residential Mortgage, Inc. is a newly organized residential real estate finance company that will invest in residential mortgage assets in the United States. They intend to elect and qualify to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes, commencing with their taxable year ending December 31, 2011. Their principal objective is to provide attractive risk-adjusted returns to their stockholders over the long term, primarily through dividend distributions and secondarily through capital appreciation. They intend to achieve this objective by selectively constructing a portfolio of assets that will consist initially of Agency MBS, but over time will be diversified to cover a broader range of other residential mortgage assets, including non-Agency MBS, residential mortgage loans and other residential mortgage assets, which they refer to as their target assets. They believe that the diversification of their portfolio of assets over time, their expertise within their target asset classes and the flexibility of their strategy will enable them to achieve attractive risk-adjusted returns under a variety of market conditions and economic cycles.

 

They will be externally managed and advised by ARM Manager, LLC, or their Manager, a recently formed indirect subsidiary of Apollo Global Management, LLC. Founded in 1990, Apollo is a leading global alternative asset manager with a contrarian and value-oriented investment approach, with total assets under management of over $67 billion as of December 31, 2010. Apollo has significant and longstanding experience in residential real estate markets through a number of its funds’ investments. For example, a fund managed by Apollo was formerly the owner of WMC Mortgage Corporation, a subprime mortgage originator, which it purchased in 1997 and sold in 2004 for approximately $472 million, generating a gross internal rate of return, or IRR, of 28.3%. In addition, certain funds managed by Apollo are currently the majority owner of Realogy Corporation, a global provider of residential real estate services. Most recently, in 2007, certain funds managed by Apollo founded Vantium Capital Markets, L.P. and its affiliates, or Vantium, an integrated real estate investment platform established to take advantage of dislocation in the mortgage markets, as described below.

They plan to initially focus their strategy on acquiring and managing a portfolio of Agency MBS assets following the completion of this offering. In the aftermath of the global financial crisis, the U.S. Federal Reserve has lowered the target for the Federal Funds Rate to a current targeted range of 0% to 0.25% which has kept financing for Agency MBS assets at historically low levels. At the same time, according to the Department of the Treasury and the Department of Housing and Urban Development’s recently released report to Congress entitled “Reforming America’s Housing Finance Market,” or the Housing Report, an estimated 90% of new mortgages originated in the United States are currently being funded through Agency financings, which is creating an ample supply of newly minted Agency MBS securitizations. They believe that there is a highly attractive investment opportunity in this asset class that has been created by the widening spread between the cost of funding for, and the yield on, Agency MBS assets. The initial focus of their business plan around the Agency MBS asset class will enable them to take advantage of these favorable market conditions as they deploy the net proceeds from this offering and the concurrent private placement described below.

They also anticipate that they will purchase single family residential whole mortgage loans and other mortgage related assets over time. They plan to source their residential mortgage loans through bulk acquisitions of pools of whole loans originated by third parties that they expect to be available for purchase from existing bulk or pool sellers. In addition, they will seek to purchase legacy non-conforming mortgage loans from a range of financial institutions which according to Inside Mortgage Finance were holding an estimated $4.8 trillion in non-conforming residential mortgage loans on their balance sheets as of December 31, 2010. These loans, which were originated with a view to being sold or financed through the private non-Agency MBS securitization market, have been retained on-balance sheet due to the large-scale reduction in mortgage securitizations since 2007. Their plan is to finance these loan purchases primarily through securitizations they create as the private non-Agency MBS market begins to recover. They may, in the future, seek to originate these assets, leveraging the experience of Apollo’s operating partners.

They have not established a minimum distribution payment level and they cannot assure investors of their ability to make distributions in the future. Although they currently do not intend to do so, until their portfolio of assets generates sufficient income and cash flow, they could be required to sell assets, borrow funds, make a portion of their distributions in the form of a taxable stock distribution or distribution of debt securities, or utilize a portion of the net proceeds of this offering and the concurrent private placement to fund their distributions. Rating = 2