Annaly Capital Management, Inc. NLY – the mortgage real estate investment trust (mREIT) – reported second-quarter 2015 core earnings of 41 cents per share, comfortably beating the Zacks Consensus Estimate of 27 cents. The figure also came ahead of the prior-year quarter tally of 30 cents.
Net interest income (“NII”) in the quarter totaled $511.3 million, down 8.4% year over year, but breezing past the Zacks Consensus Estimate of $296 million.
Quarter in Detail
For the reported quarter, average yield on interest-earning assets was 3.23%, while average cost of interest-bearing liabilities (including interest expense on interest rate swaps) was 1.59%.
This led to net interest rate spread of 1.64% for the quarter, reflecting a year-over-year increase of 38 basis points (bps). NIM came in at 2.01% compared with 1.57% in the year-ago period.
The company’s investment at fair value (including Agency mortgage-backed securities and Agency debentures) were $68 billion as of Jun 30, 2015, down from $82.4 billion as of Jun 3, 2014. The commercial investment portfolio, net of financing, denoted 13% of stockholders’ equity, as of Jun 30, 2015, unchanged on a sequential basis.
Annaly’s book value per share came in at $12.32 as of Jun 30, 2015, compared with $13.23 as of Jun 30, 2014. At the end of second-quarter 2015, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 14.2%, down from 15.4% at the end of second-quarter 2014.
Leverage was 4.8:1 as of Jun 30, 2015, compared with 5.3:1 as of Jun 30, 2014. The company offered an annualized core return on average equity of 12.79% in second-quarter 2015, up from 9.24% in second-quarter 2014.
Share Repurchase
Annaly’s board of directors has authorized the repurchase of shares up to $1 billion through Dec 31, 2016. Subject to fulfillment of certain conditions, the repurchase will be made in either open market or in privately negotiated transactions from time to time.
Internalization of Chimera’s Management
Annaly and Chimera Investment Corporation CIM announced that Chimera has inked a deal with Fixed Income Discount Advisory Company (“FIDAC”), a wholly owned subsidiary of the former, to internalize the management of Chimera. Per the deal, Chimera will purchase Annaly’s 4.4% stake in Chimera for $126.4 million. This internalization will result into the pursuit of independent strategies by the both companies. It will also enhance efficiencies for Annaly and Chimera, and will ensure continuity of experienced management team of Chimera.
Our Take
Going forward, we believe that Annaly’s diversification into commercial assets would help enhance its top-line growth.
On Jul 27, another mREIT – American Capital Agency Corp. AGNC – reported second-quarter 2015 results. Its net spread and dollar roll income of 60 cents per share (excluding estimated "catch-up" premium amortization) missed the Zacks Consensus Estimate by 2 cents.
While both Annaly and American Capital Agency currently carries a Zacks Rank #3 (Hold), Chimera has a Zacks Rank #2 (Buy). Investors interested in the mREIT industry may also consider Blackstone Mortgage Trust, Inc. BXMT, which sports a Zacks Rank #1 (Strong Buy).
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