Annaly Completes Acquisition of CreXus, Making Annaly a Hybrid mREIT

Annaly Capital Management, Inc. (NYSE: NLY) (“Annaly”) has completed its acquisition of CreXus Investment Corp. (NYSE: CXS) (“CreXus”). Annaly’s commercial real estate business will be operated under the name Annaly Commercial Real Estate Group. This acquisition now makes Annaly a hybrid REIT. Annaly was formerly the poster-child for the agency only mREIT model.

Annaly acquired CreXus pursuant to an Agreement and Plan of Merger dated January 30, 2013. As a result of the merger and related transactions, the New York Stock Exchange terminated trading in CreXus shares following the close of trading on May 23, 2013. In accordance with that agreement, CreXus was merged with a newly formed CreXus subsidiary in a transaction in which Annaly became the sole stockholder of CreXus and the persons who owned CreXus common stock immediately before the merger became entitled to receive cash equal to $13.05206 for each share of CreXus common stock that they owned immediately prior to the merger.

Annaly, Chimera And CreXus May Soon Combine Into One Diversified Mortgage REIT

Annaly Capital Management Inc. recently agreed to purchase the shares of CreXus Investment Corp. (CXS) it doesn't already own for about $872 million, valuing the company at $996 million. Annaly owns 12.4 percent of CreXus and the commercial mREIT is managed by FIDAC, a wholly-owned subsidiary of Annaly. Chimera is similarly managed by FIDAC and Annaly has a similar ownership interest in it. Crexus was to continue pursuing other deals until March 16, so it should update the public on the status of Annaly's bid this week.

Also, last week Chimera Investment Corp. (CIM) filed its 2011 10-K annual report. The mortgage REIT had not filed any reports in several quarters, and in February, the New York Stock Exchange (NYSE) gave the company a third and final extension for continued listing and trading of the company's stock on its exchange. Chimera is yet to file any results for 2012, but is expected to do so within the next two months. After those reports are filed, and provided Annaly successfully acquires CreXus, a bid for Chimera appears of ever growing probability.

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Chimera Receives Its Final NYSE Filing Extension

Last week, Chimera Investment Corporation (CIM) announced that the New York Stock Exchange (NYSE) gave the company a final 30-day extension for continued listing and trading of the company's stock on the exchange. This final extension provides the company until March 15, 2013, to file its 2011 annual report with the Securities and Exchange Commission (SEC). This is the third extension that Chimera has received. In September of 2012, the company obtained a four-month extension, until January 15, 2013, and a subsequent one-month extension to February 15, 2013, while its report should have been filed in about February of 2011.

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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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Annaly Breaks The Agency Mortgage REIT Mold In Search Of Spread

On November 12, Annaly Capital Management (NLY), the largest mortgage REIT, announced that it plans to buy Crexus Investment Corp (CXS). Annaly is an agency mREIT that usually buys residential mortgage-backed securities that are guaranteed by government-sponsored agency entities such as Fannie Mae and Freddie Mac. Crexus is a commercial mREIT in which Annaly already holds an over 12 percent interest and it is managed by FIDAC, a wholly owned subsidiary of Annaly.

Annaly announced the bid for Crexus as part of a change to its strategy in response to continued Federal Reserve purchases of government-backed residential debt. The addition of Crexus's holdings would mean NLY will no longer be an agency-only mREIT, but instead some sort of hybrid mREIT. Annaly normally buys not only residential paper, but residential paper with an agency backing, so CXS's commercial mortgage paper is rather different. Wellington Denahan, Annaly chairman and CEO, commented that:

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Recent Accelerating Prepayments Are Likely To Affect Agency Mortgage REITs

Mortgage prepayment rates have risen to their highest level since before the subprime crash as homeowners continue to refinance while borrowing costs hover at or near historic lows. According to a report by Lender Processing Services, prepayments are at their highest rate since 2005. At the rate domestic mortgages were paid in August, the entirety of U.S. home loan debt would be rewritten or paid off in about four years.

The cost of a 30-year loan fell to 3.4 percent last week, after the Federal Reserve announced it would buy $40 billion worth of mortgage securities per month in an effort to stimulate the economy. Lower rates will influence borrowers to refinance, and some mortgage holders that refinanced in the last two years are likely again refinancing if they have the credit and terms to do so. Prepayment speeds are also affected by retiring mortgages through existing home sales as well as borrower default.

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Chimera's NYSE Filing Extension Pushes Off Delisting Risk Until 2013

Last week, Chimera Investment Corporation (CIM) announced that the New York Stock Exchange has given the company until Jan. 15, 2013, to file its 2011 annual report on form 10-K with the Securities and Exchange Commission. The REIT has not filed its 2011 annual report or any subsequent reports due to the reconsideration of how to appropriately treat its junk-rated non-agency residential mortgage-backed securities portfolio under accounting standards. Last month, the company noted to the Securities and Exchange Commission that it will file its 2011 annual report as soon as possible.

Shares of CIM have had a volatile summer. Chimera's shares declined in late June and though July, largely after reporting that the REIT would cut its quarterly dividend from $0.11 to $0.09, while also again delaying its already overdue filings. Shares then began to appreciate after the company announced on Aug. 7 that it declared a plan to initiate a regular quarterly dividend of $0.09 per share for both the third and fourth quarter of 2012. The market reacted positively to the news, with Chimera shares appreciating around 10% on the date of the announcement and continuing to climb in the five weeks since then, appreciating by about 25% in total. 

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Chimera Sets Its Payout Through 2012, But Expands Its Accounting Snafu And Related Risks

On August 7, 2012, Chimera Investment Corporation (CIM) announced that it plans to initiate a regular quarterly dividend of $0.09 per share for both the third and fourth quarter of 2012. On the same day, CIM filed with the SEC, noting that each of the Company's Annual Reports (10-Ks) since 2008, and all Quarterly Reports (10-Qs) since the third quarter of 2008, need to be restated.

The market reacted positively to the news, with Chimera shares appreciating around ten percent on the date of the announcement. It appears that much of the bump was due to Chimera's plans to maintain its previously announced Q2 dividend rate of nine cents, but the market may be overlooking some of the statements included in these announcements. For example, Chimera noted that portions of the quarterly payout might be a return of capital (which could lower an investor's cost basis), and this rate is only guaranteed until the end of 2012, at which point the Board of Directors will review the policy. 

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MFA Cuts Quarterly Dividend To 23 Cents

On Wednesday, June 27, before the markets opened, MFA Financial, Inc. (MFA) declared a cash dividend of $0.23 per share of common stock for the second quarter of 2012. The dividend will be paid on July 31, to stockholders of record on July 13, with an ex-dividend date of July 11. 

This newly announced dividend is two cents or eight percent below the $0.25 MFA paid out for the second quarter of 2011, and one cent below the Q1 2012 dividend of $0.24. Though this is a reduction compared to its prior quarterly payout and the payout for the same quarter last year, these reductions are less significant than the cuts have been for the dividends of its peers.

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Chimera Reduces Dividend And Updates Book Value, But Still Has Not Filed Q4 2011 Report

On June 19, after the markets closed, Chimera Investment Corporation (CIM) announced that the company would pay a second quarter 2012 dividend of $0.09 per common share. The Q2 dividend is payable July 26, to shareholders of record on June 29, with an ex-dividend date of June 27. This is a quarterly dividend cut of two cents, with Chimera distributing $0.11 per quarter for each of the last two quarters, and $0.13 for Q2 of 2011.

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Updated Performance Review For Non-Agency & Hybrid Mortgage REITs

Below are the recent performance rates and current annual dividend rates for five mortgage REITs that are largely invested in non-agency RMBS paper: Chimera Investment (CIM), Invesco Mortgage Capital (IVR), MFA Financial (MFA), Redwood Trust (RWT) and Two Harbors Investment (TWO).

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Recent Performance Review Of 5 High Yield Hybrid Mortgage REITs

Below are the recent performance rates and current annual dividend rates for five mortgage REITs that are largely invested in non-agency RMBS paper: Chimera Investment (CIM), Invesco Mortgage Capital (IVR), MFA Financial (MFA), Redwood Trust (RWT) and Two Harbors Investment (TWO).

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Recent Performance Of Five Hybrid/Non-Agency Mortgage REITs

Below are the recent performance rates and current annual dividend rates for five mortgage REITs that are largely invested in non-agency RMBS paper: Chimera Investment (CIM), Invesco Mortgage Capital (IVR), MFA Financial (MFA), Redwood Trust (RWT) and Two Harbors Investment (TWO).

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Recent Performance Review For 5 High-Yield Hybrid Mortgage REITs

Below are the recent performance rates and current annual dividend rates for five mortgage REITs that are largely invested in non-agency RMBS paper: Chimera Investment (CIM), Invesco Mortgage Capital (IVR), MFA Financial (MFA), Redwood Trust (RWT), and Two Harbors Investment (TWO).

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Recent Performance Review Of 5 High-Yield Hybrid Mortgage REITs

Below are recent performance rates and current annual dividend rates for five mortgage REITs that are largely invested in non-agency RMBS paper: Chimera Investment (CIM), Invesco Mortgage Capital (IVR), MFA Financial (MFA), Redwood Trust (RWT) and Two Harbors Investment TWO).

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