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Annaly's Crexus Bid

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November 15, 2012 – Comments (0) | RELATED TICKERS: NLY , CXS.DL

Board: Annaly Capital Management

Author: TMFHelical

Annaly announced this morning it would attempt to acquire the portion of Crexus it does not already own. Upront, I have a bias here, as I own Crexus and not Annaly.

Crexus is a mortgage REIT focused on commercial property loans (they own a modest amount of property as well). The yield on these are generally higher, but the market far less liquid and the risk higher than agency backed MBS, which has always been Annaly's bread and butter. While NLY may own up to 25% non agency MBS assets, they haven't tended to venture far into those waters other than their ownership interest in Crexus and Chimera (non agency MBS).

Crexus is effectively unlevered. So they are buying the assets. The Key consideration in the press release is that the offer price 'represents ... approximately a 5% premium to the common stock book value per share (recent 3Q report)." This is not a large premium, but I'm not inclined to expect NLY to pay more. Less than book would not go over well with CXS shareholders, but much of a premium would hardly make sense to NLY, who can likely purchase other comparable assets if they desired.

http://investor.annaly.com/file.aspx?IID=113558&FID=1517......
[I had wanted to give this press release from the Crexus side, but there is not one up on their website]

It is worth noting that Crexus refused a buyout offer just over a year ago. So this may be an effort to avoid another attempt. It may also be an effort to bring some of the Crexus management back into Annaly. Crexus owned (in full) just under $1B in assets. This should be compared with the > $140B in assets that NLY owns, so the Crexus assets would represent under 1% in total. I'm therefore not yet inclined to see this as a signal (as some reports have) that NLY may intend to operate a bit differently moving forward under Wellington Denahan-Norris. We'll have to wait to see what they intend to do with the Crexus assets (hold, run down, sell to market?) longer term, and whether they truly intend to own a larger % of non-agency backed assets into the future.

The market is also anticipating that NLY will additionally offer to buy out the other subsidiary / sister company Chimera (CIM). Chimera has not filed a quarterly or other summary of operations for a year now, as putting a value on the assets they own has apparently been contentious. I'm inclined to believe (but have no idea really) that they may indeed buy in the rest of Chimera, but not until after Chimera files it's overdue reports (naive?). Book value of Chimera is anyone's guess at this time.

Ralph
Helical Investor

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