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Annaly's (NLY) Q2 Earnings Miss Estimates, NII Declines Y/Y

Zacks Equity Research

Annaly Capital Management, Inc. NLY reported second-quarter 2019 core earnings, excluding premium amortization adjustment (PAA), of 25 cents per share, missing the Zacks Consensus Estimate by a whisker. Moreover, the figure compares unfavorably with the year-ago tally of 30 cents.

Further, net interest income (NII) totaling roughly $177.4 million, witnessed a steep decline from the year-ago tally of $334.1 million.

Nonetheless, the company increased capital allocation to Agency from 76% to 78% during the quarter. This was driven by relative value of Agency mortgage backed securities (MBS) as compared to Credit Businesses. In addition, it managed to maintain a strong liquidity position, with unencumbered assets aggregating $7.8 billion in the June-end quarter.

Quarter in Detail

In the second quarter, average yield on interest-earning assets (excluding PAA) was 3.48%, up from the prior-year quarter’s 3.07%.

Net interest spread (excluding PAA) of 1.07% for the second quarter slid from 1.18% reported in the prior-year quarter. Net interest margin (excluding PAA) in the quarter came in at 1.28% compared with 1.56% witnessed in second-quarter 2018.

The company’s investment at fair value of Agency MBS was around $118.2 million as of Jun 30, 2019, up from $86.6 million as of Jun 30, 2018.

Moreover, Annaly’s book value per share came in at $9.33 as of Jun 30, 2019, compared with $10.35 as of Jun 30, 2018. Additionally, book value per share declined from $9.67 as of the prior-quarter end. At the end of the second quarter, the company’s capital ratio was 11.4%, down from 13.2% reported at the end of second-quarter 2018.

Leverage was 7:2:1 as of Jun 30, 2019, compared with 6:0:1 as of Jun 30, 2018. The company offered an annualized core return on an average equity of 9.94% in the April-June quarter, down from the prior-year quarter’s 11.05%.

Bottom Line

During the second quarter, Annaly made significant securitization efforts within the residential credit business by completing two residential whole loan securitizations, aggregating $772 million. Also, subsequent to the end of the quarter, it closed an additional securitization that increased aggregate issuance to $2.7 billion through seven transactions since the beginning of 2018. This apart, the company increased the number of residential whole loan origination partners by more than 25% during the April-June quarter.

Additionally, in June, the company authorized a $1.5-billion share-repurchase program, providing it additional flexibility within the company’s capital allocation framework. Hence, with 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 price-consensus-eps-surprise-chart | Annaly Capital Management Inc Quote

Currently, Annaly carries a Zacks Rank #4 (Sell).

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 second-quarter 2019 net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 49 cents per share, marginally missing the Zacks Consensus Estimate of 50 cents. Moreover, it came in lower than the prior-year figure of 63 cents per share.

Cousins Properties Incorporated CUZ posted second-quarter FFO per share (before TIER transaction costs) of 71 cents, missing the Zacks Consensus Estimate by a whisker. The figure, however, came in higher than the prior-year quarter’s reported tally of 60 cents.

SL Green Realty Corp. SLG delivered second-quarter 2019 FFO of $1.82 per share, surpassing the Zacks Consensus Estimate of $1.73. The tally includes promote income from the sale of 521 Fifth Avenue of $3.4 million or 4 cents per share. Results also compared favorably with the year-ago quarter’s tally of $1.69.

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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