The SEC revealed Annaly Capital Management’s (NYSE:NLY) documentation with SEC for 2013 which led to some complications relating Annaly’s results:
1) Mortgage REITs are quite difficult to understand
Stability of dividends is a center point for Annaly (NYSE:NLY) whereas the company’s large expenditure has caused unstable dividends.
Security and Exchange commission wrote “You paid dividends of $1.6 million and had net cash used in operating activities of $12.9 million… please discuss the source(s) of these distributions… as this disparity raises concerns about the sustainability of distributions into the future.”
Unlike many other companies, Annaly (NYSE:NLY) has different priorities which works quite different from most real estate investor companies. The company (NYSE:NLY) gives off almost 90% taxed revenue to its stakeholders. So this results in dividends instead of cash.
2) Average debt issues
SEC quotes; “please tell us how you determined it was not necessary to continue to disclose… average amount of repurchase and reverse repurchase transactions”
Repurchase pacts are a kind of large scale borrowing deals, which are utilized for enhancing its investments. However, the simple rule of investment is the more you invest the greater are your chances for profit or loss. The company (NYSE:NLY) has large amounts of debts but usually tries to pay them around the end of every quarter. This somehow covers up Anally’s (NYSE:NLY) risk taking attitude.
An example of this strategy is the fact that Annaly’s (NYSE:NLY) annual debts were about 67 billion while the average figure was a staggering 91 billion. This gives us a little overview of the company’s (NYSE:NLY) overall performance.
3) Boosting up commercial equity levels:
The security and exchanges commission states that; “please tell us how you determined it was not necessary to provide… your commercial real estate debt.”
In Jan 2013 Annaly got an investment from “CreXus Investment” by making a triple net lease profile resulting in the leasing of real estates to a lot of different companies and firms. For more than 10 years the company (NYSE:NLY) had been investing in residential properties debt, but with this new addition the company has experienced a 180 degrees change.
So, we come to wonder the reason behind Annaly’s (NYSE:NLY) secretive behaviour, and to which the company’s CFO addresses that the commercial properties make only 2% only, which makes them less important to explain in greater detail.
The prominent points he added, “as [Annaly] intends to increase the size and proportion of the commercial real estate business, the company will provide the schedule in future 10-k filings.”
4) Liquidity of revenue
During Q2 the company (NYSE:NLY) claimed 96% of its total assets to be liquid which compensates for the company’s risk management level. However it turned out that only 12% are absolutely liquid while the remaining 88% is collateral. On this account the SEC stated that:
“Please tell us how you determined these items were liquid assets… how you determined it was appropriate to include and pledged investment securities within your liquid assets.”