Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q2 2017 Earnings Presentation
30 slides from Annaly Capital Management's earnings presentation, Aug 2, 2017
Slide 1: Second Quarter 2017 Investor Presentation
Second Quarter 2017 Investor Presentation August 2, 2017
Slide 2: Forward-looking statements disclaimer
This presentation, other written or oral communications, and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future peri
Slide 3: Overview
Overview BANNALY
Slide 4: Annaly company overview and key facts
Source: Bloomberg, Company filings. Financial data as of June 30, 2017. Market data as of July 31, 2017.Agency assets include to be announced (“TBA”) purchase contracts (market value) and mortgage servicing rights (“MSRs”). Commercial Real Estate (“CRE”) assets are exclusive of consolidated variable
Slide 5: Unique Shared Capital Model
Unique Shared Capital Model Agency Residential Credit Commercial Real Estate Middle Market Lending Assets(1) $88.4bn $2.6bn $2.0bn $0.8bn Financing(2) $77.0bn $1.7bn $1.0bn $0.2bn Capital(3)(% of Total) $10.8bn(80%) $0.9bn(7%) $1.0bn(8%) $0.6bn(5%) Levered Return(4) 10-12% 9-12% 8-10% 9-11% Income S
Slide 6: Increased capital dedicated to credit assets since 2014
Since 2014, Annaly has increased its capital dedicated to credit assets from 11% to 20% at Q2 2017 and has further diversified its Agency exposure to floating rate assets Floating Rate & Credit Portfolio Evolution (2014 – 2017 YTD) Strategic Operating Milestones Source: Company filings, Bloomberg. N
Slide 7: Recent Developments
Recent Developments 7 There have been a number of recent strategic developments, partnerships and additions at Annaly geared towards further strengthening the Company’s market leadership Capital Markets GIC Ownership Commitments & Organizational Additions Partnerships $816mm(1) Common Stock Offering
Slide 8: Over $1.5 billion raised through common and preferred offerings
Annaly was successful in raising over $1.5 billion through an overnight block offering and marketed preferred equity offering Source: Bloomberg and Dealogic. Note: All comparative data as of respective pricing dates and all market data as of launch dates (unless otherwise indicated). Common offering
Slide 9: Rationale for Common and Preferred Equity Offerings
Rationale for Common and Preferred Equity Offerings 9 Source: Bloomberg.Assumes MBS yield range of 3.0% - 3.1%, Fannie Mae 30 Year 4.0 coupon hedge costs based on a 1 year duration gap, 125 bps financing cost, and leverage range of 7.0x - 8.0x. Residential whole loans assume 200 – 250 bps spread, LI
Slide 10: Annaly Strategic Partnerships
Annaly Strategic Partnerships Note: ‘Bayview’ refers to Bayview Asset Management, LLC. ‘Pingora’ refers to Pingora Holdings, L.P. ‘Pearlmark’ refers to Pearlmark Real Estate Partners. The acquisition is subject to customary closing conditions and is expected to close in Q3 2017.FHLB membership expir
Slide 11: Stock Ownership Culture Aligns Interests with Shareholders
Source: Bloomberg, SNL, Company filings.Note: Data shown as of most recent proxy filing available.Note: mREIT sector and Bank sector represent companies included in the BBREMTG and KBW Bank Index, respectively, as of July 31, 2017.Reflects voluntary ownership commitment, which is 50% higher than Mr.
Slide 12: Performance and Valuation
Performance and Valuation BANNALY
Slide 13: Industry Leading Size and Scale
Industry Leading Size and Scale Annaly is 19x the median size of all mREITs, which provides scale to allocate capital effectively among a universe of 30 investment options Source: Bloomberg, SNL Financial, and Company filings.Note: Represents companies in the BBREMTG. Market data as of July 31, 2017
Slide 14: Demonstrated Resiliency – Scaled Diversification Enhances Stability
Source: Bloomberg and Company filings. Includes all companies in the respective Agency, Hybrid, and Commercial sectors of the BBREMTG as of July 31, 2017.Dividend Stability measures the change in dividend from Q4 2013 to Q2 2017.Book Value Stability measures the change in book value from Q4 2013 to
Slide 15: Stability of Core Earnings vs. Other Yield Investments
Stability of Annaly’s Core Earnings(1) vs. Other Yield Investments Despite heightened market volatility, Annaly has continued to offer stable core earnings(1) over the past 3 years, particularly when compared to other yield strategies Source: Bloomberg, Company filings, SNL Financial. Note: mREITs i
Slide 16: Annaly vs. Other Yield Sectors – Relative Valuation
Annaly vs. Other Yield Sectors – Relative Valuation Source: Bloomberg. Equity REITS represent the S&P 500 REITS Industry Index. Banks represent the KBW Bank Index. S&P represent the SPX Index. Utilities represent the Russell 3000 Utilities Index. Asset Managers represent the S&P 500 Asset Management
Slide 17: Operating margin, ROE and leverage versus yield sectors
Source: Bloomberg, Company Financials. Operating Margin and ROE figures based on trailing 12 month financials as of Q1 2017. Market data as of July 31, 2017. Note: Equity REITS represent the S&P 500 REITS Industry Index. S&P represent the SPX Index. Asset Managers represent the S&P 500 Asset Managem
Slide 18: Market Update and Business Overview
Market Update and Business Overview
Slide 19: Macro Environment Remains Stable
Despite sentiment lift, US economic growth is largely unchanged post-electionGrowth remains in line with recent years; appears to be limited near-term upsidePrivate sector debt is at all-time highs relative to GDP, while productivity remains well below prior business cycle levels A stable, “low-flat
Slide 20: Fed balance sheet runoff and investment environment
Caps limit runoffFed balance sheet likely to remain permanently elevated from pre-QE periodGlobal gradual convergence supportive of investment environment Attractive ROEs expected to be available in multiple rate environmentsRegulatory proposals aim to relax funding conditions to support supply incr
Slide 21: Agency Spreads Trading at the Wide End of Range
Much of the anticipated spread widening resulting from the Fed tapering has been somewhat priced in by the market, which is exemplified by Agency MBS trading toward the wide end of their historical range since 2014Rising global yields coupled with slow growth and weak inflation domestically suggest
Slide 22: Balance Sheet Summary
Balance Sheet Summary Capital Structure Highlights 22 Annaly’s Strong Balance Sheet and Liquidity Q2 2017 Total Capitalization ~$79 billion Source: Company filings, Bloomberg, SNL. Note: Financial data as of June 30, 2017. Includes common stock, additional paid-in capital, accumulated other comprehe
Slide 23: Agency MBS Portfolio
Pass Through Coupon Type Agency MBS Portfolio Note: Data as of June 30, 2017. Percentages based on fair market value and may not sum to 100% due to rounding.Inclusive of TBA purchase contracts accounted for as derivatives (market value) and MSRs.“High Quality Spec” protection is defined as pools bac
Slide 24: Residential Credit Portfolio
Note: Data as of June 30, 2017. Percentages based on fair market value and reflect economic interest in securitizations. Jumbo 2.0 includes the economic interest of certain positions that are classified as Residential Mortgage Loans within our Consolidated Financial Statements. Percentages may not s
Slide 25: Commercial Real Estate Portfolio
Commercial Real Estate Portfolio Note: Data as of June 30, 2017. Note: Percentages based on economic interest and may not sum to 100% due to rounding.Commercial Real Estate assets are exclusive of consolidated variable interest entities (“VIEs”) associated with B Piece commercial mortgage-backed sec
Slide 26: Middle Market Lending Portfolio
Middle Market Lending Portfolio Lien Position Industry(1) Loan Size(2) The Middle Market Lending portfolio declined from $841 million to $774 million in assets during Q2 2017, an ~8% decrease from Q1 2017Despite reduced M&A activity and a technical imbalance with increased capital raising, fund flow
Slide 27: Performance Highlights and Trends
Performance Highlights and Trends Unaudited, dollars in thousands except per share amounts *Represents a non-GAAP financial measure; see Appendix.Net of dividends on preferred stock.Core earnings is defined as net income (loss) excluding gains or losses on disposals of investments and termination of
Slide 28: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 29: Non-GAAP Reconciliations
To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides non-GAAP financial measures. These measures should not be considered a substitute for, or superior to, financial measure
Slide 30: Non-GAAP Reconciliations (Cont'd)
Non-GAAP Reconciliations (Cont’d) To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides non-GAAP financial measures. These measures should not be considered a substitute for,
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