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Annaly (NLY) Earnings & NII Beat Estimates in Q3, BVPS Up

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Zacks Equity Research
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Annaly Capital Management, Inc. NLY reported third-quarter 2020 core earnings, excluding premium amortization adjustment (PAA), of 32 cents per share that outpaced the Zacks Consensus Estimate of 26 cents. Moreover, the figure compared favorably with the year-ago quarter’s 21 cents.

Net interest income was $447.3 million, surpassing the Zacks Consensus Estimate of $345 million. It also compared favorably with the year-ago quarter’s $152.4 million.

The stability in the mortgage backed securities (MBS) sector, an accommodative monetary policy and fiscal relief supported the company’s performance. The company also registered sequential improvement in book value per share.

Quarter in Detail

Its Agency portfolio totaled $96.3 billion as of Sep 30, 2020, unchanged from the prior quarter. Moreover, at third-quarter 2020 end, unencumbered assets stood at $8.8 billion.

In the reported quarter, average yield on interest-earning assets (excluding PAA) was 2.86%, down from the prior quarter’s 3.01%.

Moreover, net interest spread (excluding PAA) of 1.93% for the third quarter rose from 1.72% reported in the prior quarter. Net interest margin (excluding PAA) in the quarter was 2.05% compared with 1.88% witnessed in second-quarter 2020.

Also, Annaly’s book value per share (BVPS) was $8.70 as of Sep 30, 2020, sequentially up 3.7%. However, BVPS compared unfavorably with $9.21 as of Sep 30, 2019. At the end of the September quarter, the company’s capital ratio was 13.6%, up from 13% reported at the end of second-quarter 2020.

For the September-end quarter, weighted average actual constant prepayment rate (CPR) was 22.9%, up from 19.5% witnessed in second-quarter 2020.

Economic leverage was 6.2:1 as of Sep 30, 2020, down from 6.4:1 as of Jun 30, 2020. The company offered an annualized core return on average equity (excluding PAA) of 13.79% in the July-September period, up from the prior quarter’s 12.82%.

Conclusion

Low interest rates and stability in the repo market have reduced Annaly’s funding costs. Moreover, the company improved its liquidity and reduced leverage. Further, so far this year the company has repurchased shares worth $209 million and completed two residential whole loan securitizations totaling $1.0 billion in the third quarter.

Going forward, the company Agency portfolio is expected to enjoy attractive risk-adjusted returns within the fixed income markets and benefit from spread tightening.

Annaly Capital Management Inc Price, Consensus and EPS Surprise

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

Annaly Capital Management Inc price-consensus-eps-surprise-chart | Annaly Capital Management Inc Quote

Annaly currently 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

Boston Properties Inc.’s BXP third-quarter 2020 FFO per share of $1.57 missed the Zacks Consensus Estimate of $1.64. The reported figure also decreased 4.3% from the year-ago quarter’s $1.64.

SITE Centers Corp.’s SITC third-quarter operating funds from operations (OFFO) per share of 23 cents came in line with the Zacks Consensus Estimate. The reported figure, however, declined 23.3% year over year.

Highwoods Properties, Inc. HIW third-quarter 2020 FFO per share of 86 cents missed the Zacks Consensus Estimate of 88 cents. The figure includes 5 cents from debt extinguishment charges and non-cash straight-line credit losses. Nonetheless, the reported figure improved 3.6% from the 83 cents reported in the year-ago period.

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

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