Annaly Capital Management, Inc. (NLY): Business Model Canvas [10-2024 Updated]

Understanding the business model of Annaly Capital Management, Inc. (NLY) unveils the intricate strategies behind one of the largest mortgage real estate investment trusts (REITs) in the market. With a diverse investment portfolio valued at approximately $97.74 billion, Annaly employs a multifaceted approach that includes collaborations with key financial institutions and a focus on capital preservation. In this blog post, we will delve deeper into the various components of Annaly's business model canvas, exploring how they generate revenue, manage risks, and maintain strong investor relationships.

Annaly Capital Management, Inc. (NLY) - Business Model: Key Partnerships

Collaborates with mortgage loan servicers

Annaly Capital Management engages with multiple mortgage loan servicers to enhance its operational capabilities. As of September 30, 2024, the company reported a net servicing income of $320.4 million for the nine months ended, compared to $239.3 million for the same period in 2023. This reflects an increase in servicing and related income, which was $358.2 million in the same period, up from $265.7 million in 2023.

Engages investment banks for capital raising

In its efforts to raise capital, Annaly has established new Distribution Agency Agreements with several investment banks, including Barclays Capital, Goldman Sachs, and J.P. Morgan. Under the current at-the-market sales program, the company raised $1.1 billion through the issuance of 57 million shares during the third quarter of 2024. The total common equity raised exceeded $1.5 billion.

Partners with financial institutions for hedging strategies

Annaly employs various financial institutions to implement its hedging strategies, particularly focusing on interest rate risk management. As of September 30, 2024, the company had interest rate swaps with a fair value of approximately $26.3 million. The economic interest expense for the nine months ended September 30, 2024, was reported at $2.46 billion, indicating the significance of effective hedging in maintaining profitability amidst fluctuating interest rates.

Utilizes third-party service providers for operational efficiency

To maintain operational efficiency, Annaly utilizes several third-party service providers. General and administrative expenses for the nine months ended September 30, 2024, totaled $127.4 million, reflecting a slight increase from $123.7 million in the same period in 2023. This expenditure includes costs associated with technology and professional services, which are essential for streamlining operations.

Partnership Type	Details	Financial Impact
Mortgage Loan Servicers	Engagement with various servicers	Net servicing income of $320.4 million (2024)
Investment Banks	Capital raising through multiple banks	$1.1 billion raised in Q3 2024
Financial Institutions	Hedging strategies implementation	Interest rate swaps valued at $26.3 million (2024)
Third-Party Service Providers	Operational efficiency enhancement	G&A expenses of $127.4 million (2024)

Annaly Capital Management, Inc. (NLY) - Business Model: Key Activities

Invests in mortgage-backed securities (MBS)

As of September 30, 2024, Annaly Capital Management holds total assets of approximately $101.5 billion, with a substantial portion invested in mortgage-backed securities (MBS). The company reported interest income from these securities amounting to $3.5 billion for the nine months ended September 30, 2024. The investments in Agency MBS have increased by over $4 billion in notional value during Q3 2024, reflecting a strategic focus on high-quality pools.

Manages interest rate risk through derivatives

Annaly actively manages interest rate risk using derivatives, including interest rate swaps. As of September 30, 2024, the company reported a net interest income of $60.5 million, with economic net interest income for the nine months ended September 30, 2024, at $1.05 billion. The effective interest rate on its liabilities was reported at 5.42%, while the yield on interest-earning assets was 5.16%, resulting in a net interest spread of -0.26%.

Interest Rate Metrics	Q3 2024	Q3 2023
10-Year U.S. Treasury Rate	3.78%	4.57%
30-Year Mortgage Current Coupon	4.96%	6.36%
Mortgage Basis	118 bps	179 bps

Conducts asset management to optimize returns

In Q3 2024, Annaly's asset management strategies yielded a return on average equity (ROE) of 2.77%. The firm achieved an economic return of 4.9% for the quarter, with earnings available for distribution (EAD) exceeding the common dividend. The company has also increased its holdings of mortgage servicing rights (MSR) to a market value of $2.8 billion. This reflects a commitment to optimizing returns through careful asset allocation and management.

Asset Management Performance	Q3 2024	Q3 2023
Net Servicing Income	$320.4 million	$239.3 million
Total G&A Expenses	$127.4 million	$123.7 million
Economic Net Interest Income	$1.05 billion	$1.13 billion

Engages in capital raising through equity and debt offerings

During Q3 2024, Annaly raised over $1.1 billion in common equity through its at-the-market sales program. The company’s total debt issued by securitization vehicles was reported at $11.6 billion, contributing to its overall financial leverage of approximately 6.9:1. This capital-raising activity supports its investment strategies and helps mitigate risks associated with market fluctuations.

Capital Raising Summary	Q3 2024	Q3 2023
Common Equity Raised	$1.1 billion	N/A
Total Debt Issued	$11.6 billion	$11.6 billion
GAAP Leverage Ratio	6.9:1	7.1:1

Annaly Capital Management, Inc. (NLY) - Business Model: Key Resources

Diverse investment portfolio valued at approximately $97.74 billion

As of September 30, 2024, Annaly Capital Management, Inc. holds a diverse investment portfolio valued at approximately $97.74 billion. This portfolio primarily consists of Agency mortgage-backed securities (MBS), residential credit assets, and mortgage servicing rights (MSR). The composition of the portfolio is critical for generating income and managing risk across various market conditions.

Access to capital markets for financing

Annaly Capital Management has robust access to capital markets, which is crucial for financing its operations. The company utilizes repurchase agreements, which amounted to $64.31 billion as of September 30, 2024. Additionally, the company has other secured financing totaling $600 million and debt issued by securitization vehicles of $18.71 billion.

Type of Financing	Amount (in billions)
Repurchase Agreements	$64.31
Other Secured Financing	$0.60
Debt Issued by Securitization Vehicles	$18.71

Skilled management team with expertise in real estate finance

Annaly's success is significantly driven by its skilled management team, which has extensive experience in real estate finance and investment strategies. The management team focuses on risk management and optimizing the investment portfolio to enhance shareholder value. This expertise is reflected in their ability to navigate complex market conditions and maintain a competitive edge.

Proprietary risk management and analytical tools

The company employs proprietary risk management and analytical tools to assess and mitigate risks associated with its investment portfolio. These tools are designed to analyze market trends, evaluate asset performance, and optimize capital allocation. Annaly's analytical capabilities enable it to make informed decisions that align with its strategic objectives, thereby enhancing overall financial performance.

Annaly Capital Management, Inc. (NLY) - Business Model: Value Propositions

Provides attractive dividend yields to shareholders

Annaly Capital Management, Inc. is known for its strong commitment to returning profits to shareholders through dividends. For the nine months ended September 30, 2024, the company declared dividends totaling $115.8 million on preferred stock and reported earnings available for distribution of approximately $1.1 billion, translating to $1.98 per average common share. This consistent dividend payout is a significant attraction for investors seeking income-generating investments.

Offers diversified exposure to real estate markets

Annaly has built a diversified portfolio that spans various sectors of the real estate market, including agency mortgage-backed securities (MBS), residential credit, and mortgage servicing rights (MSR). As of September 30, 2024, the company’s total assets reached $101.5 billion, comprising $69.2 billion in agency MBS, $25.9 billion in residential credit, and $2.7 billion in MSR. This diversification helps mitigate risk and allows the company to capitalize on different market opportunities.

Asset Class	Fair Value (in billions)	Percentage of Total Assets
Agency MBS	$69.15	68.1%
Residential Credit	$25.90	25.5%
Mortgage Servicing Rights	$2.69	2.6%
Total	$97.74	100%

Utilizes leverage to enhance returns on equity

Annaly employs leverage as a strategic tool to enhance its returns on equity. As of September 30, 2024, the company reported a GAAP leverage ratio of 6.9:1. This level of leverage allows Annaly to amplify its investment capacity and potentially increase returns for shareholders, although it also introduces higher risk, particularly in volatile market conditions.

Focuses on capital preservation and risk management

Capital preservation and effective risk management are core components of Annaly's business model. The company actively manages its interest rate exposure and employs various hedging strategies, including interest rate swaps. As of September 30, 2024, Annaly's economic capital ratio stood at 14.6%, reflecting a focus on maintaining a solid capital structure. Additionally, the company has a robust framework for assessing and mitigating risks associated with market fluctuations and credit exposure.

Annaly Capital Management, Inc. (NLY) - Business Model: Customer Relationships

Maintains transparency with investors through regular earnings reports

Annaly Capital Management, Inc. (NLY) focuses on maintaining transparency with its investors by providing regular earnings reports. For the nine months ended September 30, 2024, the company reported a net income of $538.7 million, which translates to $0.80 per average basic common share. This represents a significant recovery from a net loss of $1.2 billion, or ($2.73) per share, for the same period in 2023.

Engages institutional investors for significant capital

Annaly actively engages institutional investors to secure substantial capital for its operations. The company reported an investment portfolio valued at approximately $97.7 billion as of September 30, 2024. Institutional investors play a crucial role in providing the necessary liquidity for Annaly’s investment strategies, particularly in mortgage-backed securities.

Develops long-term relationships with mortgage originators and servicers

To enhance its business model, Annaly Capital Management develops long-term relationships with mortgage originators and servicers. As of September 30, 2024, the company reported net servicing income of $320.4 million for the nine months ended, up from $239.3 million in the same period in 2023. This growth is indicative of successful partnerships and a robust servicing platform that allows for effective management of mortgage loans.

Offers dedicated investor relations support

Annaly provides dedicated investor relations support to foster communication and engagement with its stakeholders. The company reported earnings available for distribution (EAD) of $382.5 million, or $0.66 per average common share, for the three months ended September 30, 2024. This consistent performance demonstrates the effectiveness of its investor relations strategy in maintaining investor confidence and support.

Metric	Q3 2024	Q3 2023	Change
Net Income (Loss)	$538.7 million	($1.2 billion)	Improvement of $1.8 billion
Earnings per Share	$0.80	($2.73)	Improvement of $3.53
Investment Portfolio	$97.7 billion	N/A	N/A
Net Servicing Income	$320.4 million	$239.3 million	Increase of $81.1 million
Earnings Available for Distribution	$382.5 million	$361.9 million	Increase of $20.6 million

Annaly Capital Management, Inc. (NLY) - Business Model: Channels

Primary distribution through the New York Stock Exchange (NYSE)

Annaly Capital Management, Inc. (NLY) is primarily listed on the New York Stock Exchange (NYSE) under the ticker symbol NLY. As of September 30, 2024, the company had a total market capitalization of approximately $12.54 billion . The stock has seen fluctuations in price, with a closing price of $16.14 on September 29, 2024, compared to a price of $14.95 on the same date in 2023, reflecting a year-over-year increase of approximately 8% .

Utilizes online platforms for investor communications

Annaly actively employs its website and various online platforms to communicate with investors. The company's investor relations page provides access to earnings reports, financial statements, and presentations from quarterly earnings calls. For the nine months ended September 30, 2024, earnings available for distribution were reported at $1.1 billion, equating to $1.98 per average common share . This online communication strategy is essential for maintaining transparency and keeping investors informed of the company's performance and strategic direction.

Engages investment banks for public offerings

Annaly collaborates with leading investment banks to facilitate public offerings and capital raises. In the first nine months of 2024, the company engaged in significant capital market activities, including the issuance of $1.15 billion in new equity . This has enabled the company to effectively manage its capital structure and fund its investment portfolio, which had a total asset value of approximately $101.52 billion as of September 30, 2024 .

Participates in financial conferences to reach potential investors

Annaly Capital Management participates in various financial conferences throughout the year, which serve as a platform to connect with potential investors and analysts. During these events, the company showcases its financial performance, investment strategy, and market outlook. For instance, the company reported a net income attributable to common stockholders of $24.82 million for the third quarter of 2024 . Engaging in these conferences allows Annaly to enhance its visibility and attract new investors, crucial in a competitive market landscape.

Channel	Description	Recent Metrics
NYSE	Primary exchange for trading NLY shares.	Market cap: $12.54 billion; Price increase: 8% YoY.
Online Platforms	Investor communications via website and online tools.	Earnings available for distribution: $1.1 billion; $1.98/share.
Investment Banks	Engagement for public offerings and capital raises.	New equity issued: $1.15 billion in 2024.
Financial Conferences	Participation to connect with investors and present financials.	Net income for Q3 2024: $24.82 million.

Annaly Capital Management, Inc. (NLY) - Business Model: Customer Segments

Institutional investors seeking income-generating assets

Annaly Capital Management, Inc. primarily targets institutional investors, including pension funds, insurance companies, and endowments, who are looking for reliable income-generating assets. As of September 30, 2024, Annaly reported total assets of approximately $89.6 billion. The firm’s focus on mortgage-backed securities (MBS) has made it an attractive option for these investors, who prioritize stable returns.

Retail investors looking for high-yield investment opportunities

Retail investors are also a significant customer segment for Annaly. The company provides access to high-yield investment opportunities through its common stock and preferred stock offerings. For example, during the nine months ended September 30, 2024, Annaly's earnings available for distribution were $1.1 billion, or $1.98 per average common share. This level of yield is appealing to retail investors seeking income from their investments.

Financial institutions involved in mortgage finance

Financial institutions engaged in mortgage finance represent another key customer segment for Annaly. The company’s operations are closely tied to the mortgage market, providing these institutions with opportunities to invest in mortgage-backed securities. As of September 30, 2024, Annaly's residential mortgage loans had a fair value of approximately $23.3 billion. This significant portfolio allows financial institutions to diversify their investment strategies.

Hedge funds and other asset managers diversifying portfolios

Hedge funds and asset managers are increasingly utilizing Annaly's offerings to diversify their portfolios. The company's focus on MBS and its management of mortgage servicing rights (MSR) positions it well within this segment. As of September 30, 2024, Annaly's MSR portfolio had a market value of $2.8 billion. The firm has also been active in securitization, having completed multiple transactions totaling $9.4 billion in 2024. This activity attracts hedge funds and asset managers looking for innovative ways to achieve returns and mitigate risk.

Customer Segment	Key Characteristics	Financial Data
Institutional Investors	Focus on income-generating assets	Total assets: $89.6 billion
Retail Investors	Seek high-yield investment opportunities	Earnings available for distribution: $1.1 billion (or $1.98 per share)
Financial Institutions	Engaged in mortgage finance	Residential mortgage loans fair value: $23.3 billion
Hedge Funds & Asset Managers	Diversifying portfolios	MSR market value: $2.8 billion; securitizations in 2024: $9.4 billion

Annaly Capital Management, Inc. (NLY) - Business Model: Cost Structure

Interest expenses from financing and leverage

Interest expense for the nine months ended September 30, 2024, was $3,440,646 thousand, compared to $2,799,063 thousand for the same period in 2023. The average economic cost of interest-bearing liabilities was 3.87% for the nine months ended September 30, 2024, compared to 2.82% in 2023. The economic interest expense for the three months ended September 30, 2024, was $882,244 thousand, up from $652,142 thousand in 2023.

Operational costs for asset management and reporting

Total general and administrative (G&A) expenses for the nine months ended September 30, 2024, were $127,382 thousand, an increase from $123,652 thousand in the same period of 2023. For the three months ended September 30, 2024, G&A expenses were $43,921 thousand, compared to $39,909 thousand in 2023.

Period	Total G&A Expenses (in $000)	G&A Expenses/Average Assets	G&A Expenses/Average Equity
Q3 2024	$43,921	0.18%	1.48%
Q3 2023	$39,909	0.18%	1.41%
9M 2024	$127,382	0.18%	1.46%
9M 2023	$123,652	0.19%	1.44%

General and administrative expenses, including compensation

General and administrative expenses were $43,921 thousand for the three months ended September 30, 2024. For the nine months ended September 30, 2024, these expenses totaled $127,382 thousand.

Costs associated with compliance and regulatory requirements

Compliance and regulatory costs are embedded within the general and administrative expenses. For the nine months ended September 30, 2024, total income taxes amounted to $4,853 thousand.

Annaly Capital Management, Inc. (NLY) - Business Model: Revenue Streams

Net interest income from MBS and other investments

For the nine months ended September 30, 2024, Annaly Capital Management reported total interest income of $3,501,154,000, with interest expense amounting to $3,440,646,000, resulting in a net interest income of $60,508,000.

The average yield on interest-earning assets during this period was 5.09%, while the average cost of interest-bearing liabilities was 3.87%, leading to a net interest spread of 1.22%.

Earnings available for distribution (EAD) to shareholders

Earnings available for distribution for the nine months ended September 30, 2024, were $1,117,610,000, or $1.98 per average common share. This represents a decrease from $1,178,584,000, or $2.18 per average common share, for the same period in 2023.

The earnings available for distribution for the three months ended September 30, 2024, were $382,509,000, also at $0.66 per average common share.

Income from servicing mortgage loans

For the nine months ended September 30, 2024, Annaly reported net servicing income of $320,361,000 from mortgage servicing rights, compared to $239,250,000 for the same period in 2023.

Servicing and related income for this period was $358,182,000, with servicing and related expenses totaling $37,821,000.

Gains from the sale of securities and derivatives transactions

During the nine months ended September 30, 2024, Annaly recorded net gains (losses) on investments and other of $160,841,000, compared to a loss of $4,020,362,000 for the same period in 2023.

The net gains (losses) on derivatives for the nine months ended September 30, 2024, were $53,621,000, compared to $2,702,003,000 for the same period in 2023.

Revenue Stream	2024 (Nine Months)	2023 (Nine Months)
Net Interest Income	$60,508,000	($57,834,000)
Earnings Available for Distribution	$1,117,610,000	$1,178,584,000
Net Servicing Income	$320,361,000	$239,250,000
Net Gains (Losses) on Investments	$160,841,000	($4,020,362,000)
Net Gains (Losses) on Derivatives	$53,621,000	$2,702,003,000

Article updated on 8 Nov 2024

Resources:

1. Annaly Capital Management, Inc. (NLY) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Annaly Capital Management, Inc. (NLY)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Annaly Capital Management, Inc. (NLY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.