Hatteras gets solid start with IPO

Official results won't be available until it concludes Wednesday

By: Richard Craver | JOURNAL REPORTER
Published: April 29, 2008

Winston-Salem's newest publicly traded company, Hatteras Financial Corp., is off to a solid start two trading days after its debut.

The share price for the company, a mortgage real-estate-investment trust, closed yesterday at $25.19, up 51 cents. Hatteras began its initial public offering of 10 million shares at $24 a share on Friday.

Hatteras management said yesterday that it could not comment on the IPO until it is concluded Wednesday. Officials are scheduled to ring the opening bell at the New York Stock Exchange that day. Hatteras' trading symbol is "HTS."

Hatteras is the highest-profile IPO in the Triad since Targacept Inc. went public in April 2006.

The company, founded in September 2007, needed just eight months to begin its IPO.

What gave management the confidence to go public at a dicey time for the housing and mortgage sectors was that two private offerings of 15.2 million shares -- in November and February -- generated combined net proceeds of nearly $316 million.

Based on the IPO price and the previous offerings, Hatteras has a market capitalization of about $558.6 million.

The company is externally managed by Atlantic Capital Advisors LLC of Winston-Salem. Many of Hatteras' top executives also work for Atlantic Capital, a privately held mortgage REIT.

Hatteras said it plans to use proceeds from the offering, as well as borrowings, "to buy adjustable-rate and hybrid adjustable-rate single-family residential mortgage-backed securities that are issued or guaranteed by U.S. government agencies," such as Fannie Mae, Freddie Mac and Ginnie Mae.

"Despite recent credit-market developments that disrupted financing for nonagency securities, we believe agency securities, which are issued or guaranteed by U.S. government agencies or U.S. government-sponsored entities, will continue to be eligible for financing in the repurchase-agreement market," Hatteras said in its prospectus.

Hatteras already is trading at the third-highest share price of the 14 mortgage REITs listed in the Weekly REIT Trader as compiled by Deutsche Bank. The range of share prices among those REITs was 37 cents to $33.78 yesterday, with an average of $12.31.

"Mortgage REITs as a whole are down 10 percent year-to-date," Deutsche Bank said in its report, which was released Friday.

But James Early, a newsletter adviser for The Motley Fool, said that Hatteras appears to have "jumped in at the right time" for the mortgage REIT sector.

"Hatteras is better able to exploit the spread between mortgage-based securities and short-term financing," he said. "It also is focusing on government-backed securities, which carries less credit risk."

Hatteras reported in its prospectus that it had net income of $8.3 million in the quarter that ended March 31, up from about $1.3 million in the first quarter of 2007. Diluted earnings were 71 cents a share compared with 15 cents a year ago.

■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.