Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q2 2018 Earnings Presentation
31 slides from Annaly Capital Management's earnings presentation, Aug 1, 2018
Slide 1: Second Quarter 2018 Investor Presentation
Second Quarter 2018 Investor Presentation August 1, 2018
Slide 2: Safe Harbor Notice
Safe Harbor Notice Forward-Looking Statements This presentation includes forward-looking statements. These forward-looking statements generally can be identified by phrases such as “will,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. Sim
Slide 3: Overview
Overview ANNALY:
Slide 4: Annaly Is a Leading Diversified Capital Manager
Annaly Is a Leading Diversified Capital Manager Agency Residential Credit Commercial Real Estate Middle Market Lending The Annaly Agency Group The Annaly Commercial The Annaly Residential The Annaly Middle invests in Agency MBS Real Estate Group Credit Group invests in Market Lending Group collatera
Slide 5: Second Quarter 2018 Financial Highlights
Second Quarter 2018 Financial Highlights Earnings per Share Dividend per Share Net Interest Margin (ex. PAA)* Core 1.56% GAAP (ex. PAA)* $0.30 Earnings & $0.49 | $0.30 1.52% Book Value Book Value Per Share Dividend Yield(1) $10.35 11.66% Q1 2018 Q2 2018 Total Portfolio(2) Capital Allocation(3) Alloc
Slide 6: Annaly’s Acquisition of MTGE Investment Corp.
Annaly’s Acquisition of MTGE Investment Corp. Transaction Overview On May 2, 2018, Annaly Capital Management Inc. and MTGE Investment Corp. (“MTGE”) announced that they entered into a definitive merger agreement MTGE shareholders are expected to receive total consideration estimated at $19.65 pe
Slide 7: Investment Highlights
Investment Highlights ANNALY:
Slide 8: Annaly Advantages
Annaly Advantages Annaly’s diversification, scale and liquidity coupled with an established investment platform, provide a unique opportunity in today’s markets Size & Scale ~23x the market capitalization of the median mREIT(1)(2) Annaly operates at significantly lower expense levels than Efficiency
Slide 9: Annaly Advantages | Scale, Efficiency and Diversification
Annaly Advantages | Scale, Efficiency and Diversification Annaly continues to grow and further establish itself as a market leader while operating more efficiently and providing more investment options than any other mREIT peer Scale(1) Efficiency(2) Diversification(1)(3) ~23x the market cap of the
Slide 10: Annaly Advantages | Liquidity and Financing Optimization
Annaly Advantages | Liquidity and Financing Optimization During Q2 2018, Annaly continued to enhance funding capabilities and drive capital efficiency Fixed-Rate term funding Arcola (formerly known as “RCap”) – Proprietary in-house broker dealer provides Repo / Deep Access & beneficial access to
Slide 11: 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 Announcement Date 1/31/2013 4/11/2016 5/2/2018 Size(1) $872mm $1,498mm $900mm Highlights Increased Diversification Accretive to Earnings(2) Improved Operating Efficiency
Slide 12: Annaly Advantages | Human Capital, Governance and Engagement
Annaly Advantages | Human Capital, Governance and Engagement Annaly strategically manages all aspects of the business to position the Company to achieve sustainable, long-term performance and value creation Human Capital Ownership Culture One of Annaly’s greatest assets and differentiators is its
Slide 13: Annaly Advantages | Outperformance vs. the Market & Other Yield Sectors
Annaly Advantages | Outperformance vs. the Market & Other Yield Sectors Annaly has outperformed other yield options since its diversification strategy began in 2014 100.0% Total Shareholder Current P/B Return Multiple Annaly 77.0% 1.01x S&P 500 66.5% 3.35x 80.0% 77.0% mREITs 65.0% 1.04x Equity REITs
Slide 14: Annaly’s Opportunity
Annaly’s Opportunity Annaly is positioned to capitalize on industry and macro evolution 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 In
Slide 15: Macro Outlook & Positioning
Macro Outlook & Positioning ANNALY:
Slide 16: Annaly Outlook | Interest Rates and Macro Landscape
Annaly Outlook | Interest Rates and Macro Landscape Current macroeconomic environment supports mortgage basis over interest rate risk Annaly’s Views on Macroeconomic Environment U.S. expansion remains robust and near-term recession risks remain low Federal Reserve maintains gradual hiking cycle,
Slide 17: Defensive Portfolios are Well-Positioned for the Current Macro Environment
Defensive Portfolios are Well-Positioned for the Current Macro Environment Given the greater uncertainty in the broader global landscape, investors have been increasingly seeking stability Macro Drivers Increased Attractiveness of Defensive Stocks Defensive stocks should provide greater stability
Slide 18: Annaly Outlook | Credit Environment
Annaly Outlook | Credit Environment Annaly is positioned to capitalize on numerous opportunities in the credit markets Homebuyer Sentiment, Unemployment and Supply(1) 10 100 Homebuyer sentiment continues to rise as 90 supply and unemployment remain near 80 Residential historical lows 6 70 Credit
Slide 19: Recent Allocation to Other Asset Classes
Recent Allocation to Other Asset Classes While Agency MBS returns remain attractive, Annaly continues to opportunistically rotate into other asset classes given our growing pipelines and sound fundamentals(1) Although credit spreads remain tight, Annaly continues to evaluate select opportunities f
Slide 20: Low Beta and Outperformance During Market Turmoil
Low Beta and Outperformance During Market Turmoil During periods of market turmoil, Annaly’s beta has been 15% lower than defensive sectors and 39% lower than cyclical sectors while outperforming the S&P 500 by 12% on average Beta(1) 1.20 1.00 1.05 0.80 0.75 0.60 0.64 0.40 0.20 – Financial Crisis Ch
Slide 21: Continued Stability in Net Interest Margins
Continued Stability in Net Interest Margins Despite the continued yield curve flattening, Annaly has produced an attractive and stable net interest margin (“NIM”) ex-PAA(1) Yield curve continued to flatten in Q2 2018 as uncertainty weighed on Annaly has continued to provide an attractive, stable NIM
Slide 22: Annaly’s Outsized Yield
Annaly’s Outsized Yield Stable net interest margins have enabled Annaly to deliver more attractive yield on a relative basis than it has historically, particularly relative to high yield assets Yield Differential: Annaly Dividend Yield - High Yield Index NLY less 228 254 492 (303) (265) 884 791 683
Slide 23: Business Update
Business Update ANNALY:
Slide 24: Agency | Portfolio Summary
Agency | Portfolio Summary Agency Portfolio: $95.4bn in assets at the end of Q2 2018, a decrease of ~3% from Q1 2018(1) Modest portfolio decline was driven by small reduction of TBA position and net sales of pools with less attractive carry Agency MBS performed well in light of the continued r
Slide 25: Residential Credit | Portfolio Summary
Residential Credit | Portfolio Summary Residential Credit Portfolio: $2.9bn in assets at the end of Q2 2018, an increase of ~1% from Q1 2018 – Portfolio growth has been concentrated in whole loans – FHLB financing, as well as successful securitization execution, supported continued growth While
Slide 26: Commercial Real Estate | Portfolio Summary
Commercial Real Estate | Portfolio Summary Commercial Real Estate Portfolio: $2.3bn in assets at the end of Q2 2018, an increase of ~12% from Q1 2018 Assets continue to perform as the supply / demand fundamentals in the U.S. commercial real estate market remain favorable New investment activit
Slide 27: Middle Market Lending | Portfolio Summary
Middle Market Lending | Portfolio Summary Middle Market Lending Portfolio: $1.3bn in assets at the end of Q2 2018, an increase of ~9% from Q1 2018 Diversified first and second lien portfolio with increased focus on lead arranger opportunities and more concentrated positions New investment acti
Slide 28: Performance Highlights and Trends
Performance Highlights and Trends Unaudited, dollars in thousands except per share amounts For the quarters ended June 30, March 31, December 31, September 30, June 30, 2018 2018 2017 2017 2017 (1) GAAP net income (loss) per average common share $0.49 $1.12 $0.62 $0.31 ($0.01) (1)(2) Core earnings (
Slide 29: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 30: Non-GAAP Reconciliations
Non-GAAP Reconciliations 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 substitute for,
Slide 31: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands except per share amounts For the quarters ended June 30, March 31, December 31, September 30, June 30, 2018 2018 2017 2017 2017 Premium Amortization Reconciliation Premium amortization expense $202,426 $95,832 $203,951 $220,636 $251,0
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