Seeking Alpha

Annaly not interested in buybacks, stocks of other mREITs

  • In sharp contrast to the views at American Capital (AGNC +0.5%), Annaly (NLY +3.2%) CEO Wellington Denehan-Norris - speaking on the earnings call - says it makes more sense to lever up and directly buy mortgage-related assets than repurchasing shares or buying the stock of other mREITs.
  • Why rely on the management of other companies, says Norris, reminding of the 1998-99 period - another time when mREITs traded well below book value. After the collapse in Russia, it was found one "darling" in the mortgage REIT industry (no longer in business today) owned the debt of that country.
  • Satisfied with hedges currently in place, Annaly doesn't plan to add any more as it buys more MBS. After taking down leverage to 5:1 over the past year, the company is looking to bring it back towards 7:1.
  • On the growing commercial side of the business, Annaly is in talks with an originator of commercial mortgages for direct access to its assets.
  • Noting the recent sluggish economic stats, particularly as they relate to housing, management doesn't feel like the Fed will soon be in any position to tighten policy.
  • Presentation slides
  • Previous earnings coverage
  • Related ETFs: REM, MORT, MORL
Comments (11)
  • tomsum
    , contributor
    Comments (156) | Send Message
     
    "CEO Wellington Denehan-Norris - speaking on the earnings call - says it makes more sense to lever up and directly buy mortgage-related assets than repurchasing shares or buying the stock of other mREITs"

     

    I fully agree.
    26 Feb 2014, 10:32 AM Reply Like
  • smurf
    , contributor
    Comments (4244) | Send Message
     
    Not a big NLY fan, but this is sensible strategy. What AGNC's doing is a gimmick.
    26 Feb 2014, 10:43 AM Reply Like
  • murray555
    , contributor
    Comments (353) | Send Message
     
    I agree too and as a result I have reduced my holdings in AGNC direct and increased MORL.
    26 Feb 2014, 11:00 AM Reply Like
  • WPSPIKER
    , contributor
    Comments (1158) | Send Message
     
    Not sure if I agree with him, IF he thinks the company (NLY) stock is undervalued then BUYING it would be a better use of short term cash. With the consolidated share value driving the price up then he (company) should be able to have more leverage to borrow against to invest in hard assets in the future.

     

    That way I see it as a LONG in (NLY).

     

    M
    26 Feb 2014, 11:00 AM Reply Like
  • exmrfvc
    , contributor
    Comments (17) | Send Message
     
    What's nice to see is the interest rate spread increase to 1.43% which allowed 4Q13core earnings to beat 4Q12 core earnings despite a 40% drop in investments.
    26 Feb 2014, 11:09 AM Reply Like
  • Scott Kennedy
    , contributor
    Comments (3703) | Send Message
     
    Hi exmrfvc,

     

    Just be mindful the CPR materially decreased in Q4 2013. CPR at 9/30/2013 was 13% and at 12/31/2013 it dropped to 7%. Other mREITs weren’t as aggressive with the CPR modeling in Q4 2013 (fixed-rate agency MBS at least). NLY’s yield went from 2.88% to 3.50% in just one quarter b/c of the material CPR change. Also, cost of funds went from 1.81% to 2.07%. NLY’s CPR won’t materially decrease again in Q1 2014. During Q4 2013, AGNC’s only went from 8% to 7%.

     

    Not saying they didn’t have a nice quarter with all things considered, but readers should understand the effects of the CPR change.

     

    Scott
    27 Feb 2014, 08:23 PM Reply Like
  • exmrfvc
    , contributor
    Comments (17) | Send Message
     
    Hi Scott,
    I absolutely agree on the CPR being lower than normal in Q4. In another post I mentioned that Wellington credited about 5 cents of core earnings to the extra low CPR which I would not expect going forward. Even subrtracting the 5 cents gives a beat at 28 cents core. This post was prior to the conference call transcript so I ddin't have that info yet.
    28 Feb 2014, 09:07 AM Reply Like
  • Regarded Solutions
    , contributor
    Comments (17096) | Send Message
     
    Very sweet.
    26 Feb 2014, 11:31 AM Reply Like
  • cleehart
    , contributor
    Comments (8) | Send Message
     
    Gary Kain is a pretty smart man and I am confident he knows what he is doing. I am long AGNC and I guess we will all have to wait and see how this plays out !
    26 Feb 2014, 09:40 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (2769) | Send Message
     
    Gary K. in a different boat than Annaly now.
    It's probably not valid any more to compare the two.
    26 Feb 2014, 10:29 PM Reply Like
  • atk
    , contributor
    Comments (236) | Send Message
     
    Yes, use the cash to lever up!
    26 Feb 2014, 09:46 PM Reply Like
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