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Annaly's (NLY) Q1 Earnings Meet Estimates, NII Declines Y/Y

Zacks Equity Research

Annaly Capital Management, Inc. NLY reported first-quarter 2019 core earnings, excluding premium amortization adjustment (PAA), of 29 cents per share, in line with the Zacks Consensus Estimate. However, the figure compares unfavorably with the year-ago tally of 30 cents.

Further, net interest income (NII) totaling $218.5 million, witnessed a steep decline from the year-ago tally of $512.1 million.

Reflecting negative sentiments, shares of the company were 2.5% down in yesterday’s trading hours.

Nonetheless, the company grew its portfolio by 12% primarily through the purchase of Agency mortgage-backed securities (MBS). It also originated or purchased more than $1 billion of credit assets during the reported quarter.

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Quarter in Detail

In the first quarter, average yield on interest-earning assets (excluding PAA) was 3.45%, up from 2.99% recorded in the prior-year quarter.

Net interest spread (excluding PAA) of 1.30% for the first quarter up from 1.09% reported in the prior-year quarter. Net interest margin (excluding PAA) in the quarter came in at 1.51% compared with 1.52% witnessed in the March-end 2018 quarter.

The company’s investment at fair value of Agency MBS was around $103.1 million as of Mar 31, 2019, up from roughly $90.8 million as of Dec 31, 2018.

Further, Annaly’s book value per share came in at $9.67 as of Mar 31, 2019, compared with $10.53 as of Mar 31, 2018. Nonetheless, book value per share improved from $9.39 as of Dec 31, 2018. At the end of the first quarter, the company’s capital ratio was 12%, down from 12.1% reported at the end of the fourth quarter of 2018.

Leverage was 6:1:1 as of Mar 31, 2019, compared with 6:3:1 as of Dec 31, 2018. The company offered an annualized core return on average equity of 11.59% in the January-March quarter, up from the prior quarter’s 11.48%.

Our Take

During the first quarter, Annaly made significant securitization efforts within the residential credit and commercial real estate businesses. These efforts have improved the company’s liquidity while contributing to 75 basis points of incremental levered returns on its investments. Further, as of the March-end quarter, the company had unencumbered assets of $9 billion. Hence, with solid balance-sheet strength, the company is well positioned to expand its portfolio efficiently.

Annaly Capital Management Inc Price, Consensus and EPS Surprise


Annaly Capital Management Inc Price, Consensus and EPS Surprise | Annaly Capital Management Inc Quote

Currently, Annaly carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

AGNC Investment Corp. AGNC reported first-quarter 2019 net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 52 cents per share, missing the Zacks Consensus Estimate of 56 cents. Moreover, it came in lower than the prior-year quarter’s reported figure of 60 cents per share.

Duke Realty Corporation’s DRE first-quarter 2019 core FFO per share of 33 cents surpassed the Zacks Consensus Estimate of 32 cents. Moreover, the figure came in higher than the year-ago quarter’s reported tally of 30 cents.

Ventas, Inc. VTR delivered first-quarter normalized FFO of 99 cents, beating the Zacks Consensus Estimate of 96 cents. The reported figure, however, came in lower than the prior year’s $1.05.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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