Annaly Furthers Its Pursuit Of Crexus And Its Commercial Paper

On Januray 31, Annaly Capital Management Inc. (NLY), the largest mortgage real estate investment trust, or mREIT, reported that it agreed to purchase the rest of Crexus Investment Corp. (CXS) for about $872 million. Annaly already owns 12.4 percent of Crexus and will pay $13 per share in cash for the remaining stock, valuing the company at $996 million. The terms of the agreement allow Crexus to pursue alternatives to the deal though March 16, and Crexus has indicated that a special committee and independent advisers will "actively solicit" other options.

In November, Annaly bid $12.50 a share for CXS, a commercial mREIT as part of Annaly's new plan to broaden its business in the wake of Federal Reserve purchases of government-backed residential mortgage debt, which have caused agency security yields to decline and prepayment rates to increase. 

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Beyond Analy's 12.4 percent ownership of Crexus, the commercial mREIT is managed by FIDAC, a wholly owned subsidiary of Annaly. As a result, Annaly is clearly highly familiar with the assets held within the Crexus portfolio. At the time Annaly made its initial bid for Crexus, Wellington Denahan, Annaly's chairman and CEO, commented that:

"Since our inception in 1997, Annaly has maintained the capacity to diversify its asset base to include real estate related assets in addition to Agency mortgage-backed securities if we determined that compelling other long-term investment opportunities exist relative to the Agency market. While we remain committed to the Agency market, given the current environment, we believe it is prudent to diversify a portion of our investment portfolio. Therefore, we may allocate up to 25% of our shareholders' equity to real estate assets other than Agency mortgage-backed securities. 

A powerful step in this direction is the proposed acquisition of CreXus. We believe that wholly owning the commercial real estate platform we currently manage through FIDAC is complementary to our existing business and return profile and should provide stable and diversified risk-adjusted returns to our shareholders."

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