Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q3 2018 Earnings Presentation
38 slides from Annaly Capital Management's earnings presentation, Oct 31, 2018
Slide 1: Third Quarter 2018 Investor Presentation
Third Quarter 2018 Investor Presentation October 31, 2018
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: Third Quarter 2018 Financial Highlights
Third Quarter 2018 Financial Highlights Earnings per Share Dividend per Share Net Interest Margin Core GAAP (ex. PAA)* GAAP (ex. PAA)* $0.30 Earnings & $0.29 | $0.30 1.49% | 1.50% Book Value Book Value Per Share Dividend Yield(1) Return on Equity Core $10.03 11.73% GAAP (ex. PAA)* 10.73% | 10.85% To
Slide 6: Investment Highlights
Investment Highlights ANNALY
Slide 7: Annaly Advantages
Annaly Advantages Annaly’s diversification, scale and liquidity coupled with an established investment platform, provide a unique opportunity in today’s markets Annaly operates at Annaly utilizes a significantly lower multitude of funding 3 transformational expense levels than other sources and has
Slide 8: Annaly Advantages | Recent Developments Enhance Size and Scale
Annaly Advantages | Recent Developments Enhance Size and Scale Since January 2016, Annaly has grown its market cap by $4.4 billion, or 50%, through 2 strategic acquisitions and 5 equity offerings(1), while declaring over $3.8 billion in dividends to shareholders Annaly Market Capitalization and Cumu
Slide 9: Annaly Advantages | Diversification
Annaly Advantages | Diversification Expanded diversification enhances flexibility to capture opportunities Healthcare Equity 2014 represents the beginning Conduit CMBS Average of Annaly’s broad-based CMBX ($ in m illio ns ) Small Balance diversification efforts IPO 1998-2012 2013-2015 2016-2018 Toda
Slide 10: Annaly Advantages | Efficiency
Annaly Advantages | Efficiency Annaly continues to further establish itself as a diversified market leader while operating more efficiently than Yield Sectors and mREIT peers OpEx as % of Average Equity(1) 100% Efficiency: More efficient than Yield 83.5% Sectors and mREIT peers by nearly 21x 80% a
Slide 11: Annaly Advantages | Strategic Financing Alternatives
Annaly Advantages | Strategic Financing Alternatives Annaly’s financing flexibility and ability to raise liquidity provides the company with unique competitive advantages Total Capitalization Financing Options Available Financing Residential 9/30/2018: $99.2 billion(1) Agency ACREG AMML Options Cred
Slide 12: Annaly Advantages | Proven Track Record as a Disciplined Consolidator
Annaly Advantages | Proven Track Record as a Disciplined Consolidator Annaly is an industry leading acquirer Acquires MTGE Investment Corp. Announcement Date 1/31/2013 4/11/2016 5/2/2018 Size(1) $872mm $1,498mm $906mm Highlights Increased Diversification Accretive to Earnings(2) Improved
Slide 13: Annaly Advantages | Environmental, Social and Governance Focus
Annaly Advantages | Environmental, Social and Governance (“ESG”) Focus Focus on Environmental, Social and Governance pillars drives Annaly’s long-term strategy, purpose and performance Principles Recent Initiatives Gold Environmental LEED Certified HQ Annaly is focused on promoting practices at it
Slide 14: Annaly Advantages | Our Investments Help Fuel the Economy
Annaly Advantages | Our Investments Help Fuel the Economy Annaly’s housing finance portfolio supports homes and communities in every state across the U.S. 3.9 million additional homes Nearly 750,000 homes Supported through Annaly’s investments in CRT securities, which Annaly provides financing for A
Slide 15: Annaly Advantages | Outperformance and Relative Valuation
Annaly Advantages | Outperformance and Relative Valuation Annaly’s performance and yield profile are superior to other yield asset classes, yet valuation remains relatively low Total Return(1) Dividend Yield Price to Book 73.9%73.8% 5.29x 11.7% 63.0% 56.2% 10.6% 53.1% 49.7% 42.9% 8.0% 3.52x Yield Se
Slide 16: 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 Residential GSE Risk Sharing Credit Low Beta as Volatility Incre
Slide 17: Annaly's Relative Value
Annaly’s Relative Value ANNALY
Slide 18: Traditional Valuation and Performance Metrics
Traditional Valuation and Performance Metrics… Annaly trades at a relative discount to other yield producing sectors despite outperforming across operating and performance metrics Yield Sectors Equity Select Consumer Annaly vs. Yield S&P 500 Utilities MLPs REITs Financials Staples Sectors(1) Price t
Slide 19: …Can be Supplemented by Analyzing Risk-Adjusted Returns
…Can be Supplemented by Analyzing Risk-Adjusted Returns Stability, low beta and strong performance have resulted in outsized risk-adjusted returns Performance vs. Beta Performance vs. Standard Deviation of Returns Treynor Ratio(1) Sharpe Ratio(2) Annaly’s Treynor Ratio(1) is Annaly’s Sharpe Ratio(2)
Slide 20: Risk-Adjusted Returns | Return per Unit of Economic Leverage
Risk-Adjusted Returns | Return per Unit of Economic Leverage Since 2016, Annaly’s core ROE(1) per unit of leverage has been ~46bps, or 39%, greater on average than the Agency Peer average 2.20% Annualized Core ROE(1) per Unit of Economic Leverage 2.00% 1.75% 1.80% 1.73% 1.65% 1.65% 1.65% 1.60% 1.62%
Slide 21: Risk-Adjusted Returns | Margin Stability
Risk-Adjusted Returns | Margin Stability Annaly has maintained a Net Interest Margin (“NIM”) (ex-PAA)(1) that is 11x more stable than the average mREIT since 2016 Annaly NIM (ex-PAA)(1) NIM Dispersion Relative to mREIT Peers(2) (Q1 2016 – Q3 2018) (Q1 2016 – Q2 2018) 1.56% 1.55% 1.54% 1.54% 1.53% 1.
Slide 22: Outperformance During Volatile Periods
Outperformance During Volatile Periods Annaly has historically outperformed the broader market as market volatility has risen Total Shareholder Return Since 2014 When the VIX Index(1) is Above 15 Total Shareholder Return(2) Annaly Outperformed the S&P 500 by 62% 25% 18% 7% 1% – (6%) (23%) (25%) Yiel
Slide 23: Business Update
Business Update ANNALY
Slide 24: Agency | Portfolio Summary
Agency | Portfolio Summary Agency Portfolio: $106.1 billion in assets at the end of Q3 2018, an increase of ~11% from Q2 2018(1) Portfolio increase was driven by onboarding of MTGE assets and outright purchases of specified pools and TBAs Mixed Agency MBS performance in Q3 2018 amid the contin
Slide 25: Residential Credit | Portfolio Summary
Residential Credit | Portfolio Summary Residential Credit Portfolio: $3.2 billion in assets at the end of Q3 2018, an increase of ~13% from Q2 2018 – Portfolio growth primarily attributable to whole loan purchases coupled with the onboarding of MTGE credit assets Closed $384 million residential
Slide 26: Commercial Real Estate | Portfolio Summary
Commercial Real Estate | Portfolio Summary Commercial Real Estate Portfolio: $2.7 billion in assets at the end of Q3 2018, an increase of ~19% from Q2 2018 – Continued to drive portfolio growth through an attractive pipeline despite increasingly competitive credit markets – Increased debt originat
Slide 27: Middle Market Lending | Portfolio Summary
Middle Market Lending | Portfolio Summary Middle Market Lending Portfolio: $1.5 billion in assets at the end of Q3 2018, an increase of ~22% from Q2 2018 First and second lien portfolio with increased focus on lead arranger opportunities and more concentrated positions New investment activity
Slide 28: Performance Highlights and Trends
Performance Highlights and Trends Unaudited, dollars in thousands except per share amounts For the quarters ended September 30, June 30, March 31, December 31, September 30, 2018 2018 2018 2017 2017 (1) GAAP net income (loss) per average common share $0.29 $0.49 $1.12 $0.62 $0.31 (1) Core earnings (
Slide 29: Performance Highlights and Trends (cont'd)
Performance Highlights and Trends (cont’d) Unaudited, dollars in thousands For the quarters ended September 30, June 30, March 31, December 31, September 30, 2018 2018 2018 2017 2017 Agency mortgage-backed securities $89,290,128 $86,593,058 $88,579,097 $90,551,763 $85,889,131 Credit risk transfer se
Slide 30: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 31: Non-GAAP Reconciliations
Non-GAAP Reconciliations In connection with the Company's continued growth and diversification, including the recent acquisition of MTGE Investment Corp., the Company has updated its calculation of core earnings and related metrics to reflect changes to its portfolio composition and operations. Begi
Slide 32: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands except per share amounts To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company provides non-GAAP financial measures. These measures should not be considered a substi
Slide 33: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands For the quarters ended September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2018 2018 2018 2017 2017 2017 2017 2016 2016 2016 2016 Premium Amortization Reconcilia
Slide 34: Glossary and Endnotes
Glossary and Endnotes ANNALY
Slide 35: Glossary
Glossary ACREG: Refers to Annaly Commercial Real Estate Group Hybrid Peers: Represents their respective sector within the BBREMTG Index* ADTV: Represents the average daily trading volume ($millions) for the trailing 3 months MLPs: Represents the Alerian MLP Index* Agency Peers: Represents their resp
Slide 36: Endnotes
Endnotes Page 4 Page 8 1. Agency assets include to be announced (“TBA”) purchase contracts (market value) and mortgage 1. Number of equity offerings does not include any distributions made pursuant to Annaly’s at- servicing rights (“MSRs”). Residential Credit and ACREG assets include only the econom
Slide 37: Endnotes (cont'd)
Endnotes (cont’d) Page 14 Page 20 1. Represents the estimated number of homes financed by Annaly’s holdings of Agency MBS, 1. Annaly core ROE (ex-PAA) is a non-GAAP financial measure; see Non-GAAP Reconciliations. residential whole loans and securities, as well as multi-family commercial real estate
Slide 38: Endnotes (cont'd)
Endnotes (cont’d) Page 26 Non-GAAP Reconciliations 1. Includes $30 million of future funding commitments. 2. B-Notes held for investment reflected as mezzanine investments. Page 32 3. Other includes 45 states, none of which represents more than 5% of total portfolio value. The 1. Beginning with the
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