Annaly Capital Management Inc.
) - the mortgage real estate investment trust (mREIT) reported
encouraging fourth-quarter 2013 results following dismal third
quarter earnings. The company's core earnings per share came in
at 35 cents, which is 10 cents ahead of the Zacks Consensus
Estimate of 25 cents. The results were also ahead of the prior
quarter core earnings per share of 28 cents and the year-ago
period figure of 32 cents.
Results were driven by an increase in net interest income. The
company is also making efforts to diversify and its commercial
investment portfolio increased two fold since the CXS
acquisition. Annaly has also lowered its leverage level so as to
tap opportunistic ways to deploy capital and enhance
Net interest income came in at $633.9 million, up 11.0% year over
year and well ahead of the Zacks Consensus Estimate of $288
The company is boosting its commercial investments portfolio.
This portfolio, which includes commercial real estate investments
and corporate debt, represented 14% of stockholders' equity as of
Dec 31, 2013, compared with 11% as of Sep 30, 2013. Commercial
real estate investments increased 23% sequentially to $1.6
billion as of Dec 31, 2013, from $1.3 billion as of Sep 30, 2013.
Quarter in Detail
For the reported quarter, annualized yield on average
interest-earning assets was 3.50% while annualized cost of funds
on average interest-bearing liabilities (including the net
interest payments on interest rate swaps) was 2.07%.
This led to an average interest rate spread for the quarter of
1.43%, reflecting a 36 basis points increase from the prior
quarter. The uptick, primarily driven by higher annualized yield
on average interest-earning assets, was helped by lower
amortization expense on its investment securities.
However, the company's Investment Securities (includes Agency
mortgage-backed securities, Agency debentures and corporate debt)
were $73.4 billion as of Dec 31, 2013, reflecting a decline from
$83.0 billion as of Sep 30, 2013.
Moreover, Annaly Capital's book value per share continued to
fall. It came in at $12.13 as of Dec 31, 2013, reflecting a 4.5%
sequential decrease and a 23.5% year-over-year decline.
As of Dec 31, 2013, the company's capital ratio (representing the
ratio of stockholders' equity to total assets) was 15.1%,
compared with 13.9% in the prior quarter. Leverage was 5.0:1 as
of Dec 31, 2013, compared with 5.4:1 as of Sep 30, 2013. Annaly
Capital offered an annualized return on average equity, on a core
earnings basis, of 11.05% for fourth-quarter 2013, up from 8.62%
in the prior quarter.
The beginning of the tapering by the Fed has lowered the
uncertainty in the fixed income markets and the company has
adjusted its leverage level as well. Moreover, we believe that
the diversification of Annaly Capital into the commercial assets
would help enhance the company's top-line growth going forward.
Earlier this month, another mREIT -
American Capital Agency Corp.
) - reported encouraging fourth-quarter 2013 results with its net
spread income per share of 76 cents, significantly exceeding the
Zacks Consensus Estimate of 63 cents. The company had shifted its
focus on shorter maturity securities and controlled leverage in
mid 2013 amid volatility in the interest rate.
Towards the end of the year, the volatility reduced and with
increasing yields on MBS and a steeper yield curve, the current
return environment looks promising according to the company.
Annaly Capital currently has a Zacks Rank #3 (Hold). Some
better-ranked stocks in the same industry include
Blackstone Mortgage Trust, Inc.
Five Oaks Investment Corp.
). Both these stocks hold a Zacks Rank #2 (Buy).
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