Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q4 2018 Earnings Presentation
33 slides from Annaly Capital Management's earnings presentation, Feb 13, 2019
Slide 1: Fourth Quarter 2018 Investor Presentation
Fourth Quarter 2018 Investor Presentation February 13, 2019
Slide 2: Safe Harbor Notice
Safe Harbor Notice Forward-Looking Statements 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 m
Slide 3: Overview
Overview ANNALY
Slide 4: Annaly is a Leading Diversified Capital Manager
Annaly is a Leading Diversified Capital Manager The Annaly Agency Group invests in Agency MBS The Annaly Residential Credit Group invests in Non- collateralized by residential mortgages which are Agency residential mortgage assets within the guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae securi
Slide 5: Recent Accomplishments
Recent Accomplishments Annaly achieved a number of significant strategic milestones since the beginning of 2018 Business Expansion and Diversification Acquisitions Origination Financing Capital to Credit $4.2 Billion $2.4 Billion 28% $906 Million Acquisition of of whole loans, CMBS and of incrementa
Slide 6: Recent Corporate Responsibility Enhancements
Recent Corporate Responsibility Enhancements Recent initiatives and acknowledgements demonstrate Annaly’s continued focus on Corporate Responsibility Corporate Governance Gender Diversity Responsible Investments & Corporate Governance Recognized in Enhancements Related to Board Expands Board with El
Slide 7: Fourth Quarter 2018 Financial Highlights
Fourth Quarter 2018 Financial Highlights Earnings (Loss) per Share Dividend per Share Net Interest Margin Net Interest Margin Core (ex. PAA)* GAAP (ex. PAA)* $0.30 1.49% 1.50% 1.49% Earnings & ($1.74) | $0.29 1.34% Book Value Book Value per Share Dividend Yield(1) $9.39 12.22% Q3 2018 Q4 2018 Q3 201
Slide 8: Investment Highlights
Investment Highlights ANNALY
Slide 9: Annaly Advantages
Annaly Advantages The diversification, scale and liquidity of Annaly’s established investment platform provide a unique opportunity in today’s markets Annaly operates at Annaly utilizes a significantly lower multitude of funding expense levels than other sources and has 3 transformational $7.7bn of
Slide 10: Annaly Advantages | Size & Scale Drive Performance Even in Challenging Markets
Annaly Advantages | Size & Scale Drive Performance Even in Challenging Markets Since January 2016, Annaly has grown its market cap by $5.7 billion, or 64%, and declared over $4.2 billion in dividends to shareholders amidst a market backdrop where the Fed has raised rates 8 times and the 2s-10s curve
Slide 11: Annaly Advantages | Diversification Allows for Optionality
Annaly Advantages | Diversification Allows for Optionality Annaly continues to successfully implement its diversification strategy by originating high quality assets with compelling valuations and structures Annaly originated or purchased $4.2 billion of whole loans, commercial mortgage-backed sec
Slide 12: Annaly Advantages | Efficiency of Annaly's Model Helps Drive Performance
Annaly Advantages | Efficiency of Annaly’s Model Helps Drive Performance Annaly continues to further scale its diversified platform while operating more efficiently than Yield Sectors and mREIT peers OpEx as % of Average Equity(1) 84.8% Efficiency: More efficient than the S&P 500, Yield Sectors an
Slide 13: Annaly Advantages | Diversified Financing Enhances Liquidity
Annaly Advantages | Diversified Financing Enhances Liquidity Annaly’s diversified financing sources and liquidity provide the Company with unique competitive advantages Achieved financing diversification through four residential Added $900 million of credit financing capacity through whole loan
Slide 14: Annaly Advantages | Proven Track Record as a Disciplined Consolidator
Annaly Advantages | Proven Track Record as a Disciplined Consolidator Since Annaly announced the acquisition of Hatteras Financial Corp. in April 2016, the number of mREITs has decreased by 23% while the sector market capitalization has grown ~$19 billion(1), or 41%, and P/TBV multiples expanded by
Slide 15: Annaly Advantages | ESG Focus Embedded in Annaly's Culture
Annaly Advantages | ESG Focus Embedded in Annaly’s Culture Annaly takes into account Environmental, Social and Governance factors that contribute to our ability to drive positive impacts and deliver attractive risk-adjusted returns over the long term Principles Recent Initiatives Internal campaign
Slide 16: Annaly Advantages | Outperformance and Relative Valuation
Annaly Advantages | Outperformance and Relative Valuation Annaly’s low beta and strong performance have resulted in outsized risk-adjusted returns since the beginning of 2014 Total Return(1) Treynor Ratio(3): Performance vs. Beta Beta 19.6 1.11 83% 1.00 0.99 68% 62% 63% Yield Sectors(2): 0.86 12.9 5
Slide 17: Annaly's Opportunity
Annaly’s Opportunity Annaly is positioned to capitalize on industry and macro trends Industry / Macro Factors Annaly’s Business Annaly Positioning Provides Permanent Capital Solution Fed Exit Agency Efficient Shared Capital Model GSE Risk Sharing Residential Credit Low Beta as Volatility Incre
Slide 18: Business Update
Business Update ANNALY
Slide 19: Agency | Portfolio Summary
Agency | Portfolio Summary Annaly Agency Portfolio: $105.3 billion in assets at the end of Q4 2018, a decrease of 2% from Q4 2017 The portfolio mix was comprised of over 90% 30-year fixed rate securities, as we believe these offer the most attractive risk-adjusted returns in the Agency MBS marke
Slide 20: Residential Credit | Portfolio Summary
Residential Credit | Portfolio Summary Annaly Residential Credit Portfolio: $3.3 billion at the end of Q4 2018, an increase of 17% from Q4 2017(1) Closed three residential whole loan securitizations during 2018 for an aggregate $1.1 billion – Subsequent to year end, priced a fourth securitizatio
Slide 21: Commercial Real Estate | Portfolio Summary
Commercial Real Estate | Portfolio Summary Annaly Commercial Real Estate Portfolio: $2.5 billion in assets at the end of Q4 2018, an increase of 24% from Q4 2017 Enhanced regional origination presence and expanded capital markets efforts enabled Commercial Real Estate to close over $1.2 billion
Slide 22: Middle Market Lending | Portfolio Summary
Middle Market Lending | Portfolio Summary Annaly Middle Market Lending Portfolio: $1.9 billion in assets at the end of Q4 2018, an increase of 87% from Q4 2017 Given evolving market conditions, the portfolio shifted towards more first lien investments while maintaining outsized returns – Portfol
Slide 23: Performance Highlights and Trends
Performance Highlights and Trends Unaudited For the quarters ended 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 GAAP net income (loss) per average common share (1) ($1.74) $0.29 $0.49 $1.12 $0.62 Core earnings (excluding PAA) per average common share* (1) $0.29 $0.30 $0.30 $0.30 $0.31 Core ea
Slide 24: Performance Highlights and Trends (cont'd)
Performance Highlights and Trends (cont’d) Unaudited, dollars in thousands For the quarters ended 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 Agency mortgage-backed securities $90,752,995 $89,290,128 $86,593,058 $88,579,097 $90,551,763 Credit risk transfer securities 552,097 688,521 563,796
Slide 25: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 26: Non-GAAP Reconciliations
Non-GAAP Reconciliations Beginning with the quarter ended September 30, 2018, the Company updated its calculation of core earnings and related metrics to reflect changes to its portfolio composition and operations, including the acquisition of MTGE in September 2018. Compared to prior periods, the r
Slide 27: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands except per share amounts To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company provides non-GAAP financial measures. These measures should not be considered a substi
Slide 28: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands For the quarters ended 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 Premium Amortization Reconciliation Premium amortization expense $220,131 $187,537 $202,426 $95,832 $203,951 Less: PAA cost (benefit) $45,472 $3,386 $7,516 ($1
Slide 29: Glossary and Endnotes
Glossary and Endnotes ANNALY
Slide 30: Glossary
Glossary ACREG: Refers to Annaly Commercial Real Estate Group Hybrid Peers: Represents companies comprising the hybrid sector within the BBREMTG Index* Agency Peers: Represents companies comprising the Agency sector within the BBREMTG Index* MLPs: Represents the Alerian MLP Index* AMML: Refers to An
Slide 31: Endnotes
Endnotes Page 4 Page 9 1. Agency assets include to be announced (“TBA”) purchase contracts (market value) and mortgage 1. Data shown since December 31, 2013, which marks the beginning of Annaly’s diversification servicing rights (“MSRs”). Residential Credit and Commercial Real Estate assets exclude
Slide 32: Endnotes (cont'd)
Endnotes (cont’d) Page 14 Page 21 1. Representative of BBREMTG Index as of January 31, 2019 pro forma for pending acquisition of 1. Reflects joint venture interests in a social impact loan investment fund that is accounted for ORM by RC (announced on November 7, 2018). under the equity method for GA
Slide 33: Endnotes (cont'd)
Endnotes (cont’d) Non-GAAP Reconciliations Page 27 1. Includes depreciation and amortization expense related to equity method investments. 2. Beginning with the quarter ended September 30, 2018, the Company excludes non-core (income) loss allocated to equity method investments, which represents the
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