Opinions
Sandy McIntyre
Annaly Capital Management Inc.
NLY-N
COMMENT
Dec 10, 2012
Stock price when the opinion was issued
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Mortgage REITs. These tend to attract a lot of investors. The yield is very high, between 12% and 15%. They use debt to lend it as mortgages. The stock has been in decline. Why get a high yield vehicle when you are going to lose it all on capital? It is better to focus on high quality real estate.
A mortgage REIT. They leverage the slope of the yield curve, to invest in mortgages. Rising rates are not necessarily a good thing for them. It really all revolves around their ability to leverage the spread in the yield curve. There is also some reinvestment risk. If existing pools of mortgages are maturing at higher rates than what you can invest in, that impairs profitability.
It is a mortgage REIT making money by borrowing on the short end of the curve and lending on the long end. The portfolio is much larger than the capital they have to play with, so there is volatility. If rates go up next year it creates refinancing risk for them. He is not comfortable with the leverage in the portfolio.
Dividend dropped 12%? He has not looked at this one for a few years. It is a rolling of US mortgages and real estate instruments and comes with a high yield. He has never found these types of products to make money for investors. You may not want this long term -- perhaps for a short term trade.
Founded in 1997 as a real estate investment trust (reit), annaly is a leading mortgage reit listed on the new york stock exchange (nyse: nly). annaly's principal business objective is to generate net income for distribution to shareholders through the prudent selection and management of our investments. since inception, annaly has paid over $13 billion in dividends to shareholders. Social media mentions are up 300% in the past 24h.
Like other major mortgage REITs, this is a structure where you lever up mortgage paper using short-term debt which can run to 6-7 times leverage. In periods where short-term rates are rising relative to long-term rates, there is a lot of pressure on this type of a structure. Recently been weak because of refinancing going on in mortgages. Available spread post QE3, has been reduced due to the Federal Reserve getting in to the mortgage market and buying back mortgage bonds, forcing down yields and enabling people to roll over mortgages at cheaper rates.