Train your sights on Annaly Capital Management, Inc (NYSE:NLY)

Posted by Kristi Scott June 4, 2013 0 Comment 2354 views


Most REIT’s have been reporting a drop in book value Annaly Capital Management, Inc (NYSE:NLY) is the one and only mortgage REIT which is bigger than American Capital who said that its book value fell 4 percent. However, the company is diversifying its existing portfolio and is acquiring Crexus Investments. The company primarily invests in Commercial Mortgage Backed Securities. This segment is that which offers significantly higher interest-spreads.

Analysing Annaly

Though CMBS do not have federal agency backing, thus carrying a greater risk, it would be possible for NLY to increase its net-earnings without really leveraging the existing portfolio. Crexus Investments operates with just 4% debt/equity. This can very comfortably be leveraged further to increase the company’s commercial holdings. It can also boost Annaly Capital Management, Inc’s dividend payouts. Apart from value addition, NLY posted a 100bps sequential decline in conditional pre-payment rates for the most recent quarter. Although the CPRs stand at a high 18%, its decline indicates declining risks of pre-payments and improving asset quality. In comparison to American Capital Agency Corp, Annaly Capital Management, Inc. (NYSE:NLY) definitely offers better growth-potential.

Time to wake-up

Mortgage REITs have been amongst the most benefited from government policies to revive housing and to energize the economy. The so-called, central bank policy of quantitative easing, purchasing mortgage and Treasury  bonds, now means that it cheaper for all REITs to borrow money and invest in the very same government-backed mortgage bonds that have been targeted by the Fed. Since 2009 end, this has helped drive a 67% increase in mortgage REIT stocks, including re-invested dividends. Now, with the U.S housing market on a comeback trail and the unemployment rate finally dropping in April to 7.5% from its 10% the general feeling is that the Fed will step-away sooner than anticipated.


About Kristi Scott

Kristi Scott joined GDP Insider in 2005 as a Wall Street reporter for the Business and Market section. Kristi covers the stock market, financial markets and personal finance. Her awards have come from the National Federation of Professional Writers, the Ohio Newspaper Association, the Cleveland Press Club, the Society of Professional Journalists and Suburban Newspapers of America. Kristi was named SNA's national Journalist of the Year

View all post by Kristi Scott Visit author's website

Write Your Comment