The real estate investment trust (REIT), Invesco Mortgage Capital Inc. (IVR), launched by Invesco Ltd. (IVZ), announced the pricing of its 8.5 million shares on June 26, 2009. The price was set at $20.00 per share and the REIT has also granted the underwriters a 30-day option to purchase an additional 1,275,000 common shares from the company to cover any over-allotments.

After deducting underwriting discounts, commissions and expenses related to the offering the net proceeds will be approximately $195.5 million (assuming the underwriters’ over-allotment option is not exercised). IVR intends to use the money raised from the offering to purchase mortgage-backed securities and loans, which have lost value due to the housing market turmoil. However, with the sign of recovery in the overall housing market, the company will get some benefit from those investments.

Additionally, the shares of IVR started trading on the NYSE effective June 26, 2009. We will keep a watchful eye on how the stock gains investors confidence.

During the last five quarters, the downturn in global equity markets and the impact of less favorable foreign exchange rates were the reasons for continuously declining assets under management of IVZ. Though the management is very optimistic about the future of IVZ’s stable value business, we think past experience of significant outflow of stable value could return. However, the expense reduction initiatives and broad diversification will be the major strength in the near future.

The shares currently trade at 27.9 times the consensus estimate for FY09, at par with the median of the peer group ( T. Rowe Price Group [TROW], Franklin Resources [BEN], Affiliated Managers Group [AMG] and BlackRock, Inc [BLK]). On a price-to-book basis, the shares trade at 1.05 times, which is a 43% discount to 1.85 times for the peer group median. The valuation on a price-to-book basis looks somewhat stretched, given an ROE that is 53% below the peer median. As such, we maintain our Hold recommendation on the shares of IVZ.

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