Annaly Capital Management (NYSE: NLY), one of the largest mortgage real estate investment trusts (REITs), is trimming the fat to focus on its core business: residential mortgages. Annaly’s commercial (CRE) line of business is getting acquired for $2.3 billion. This news comes on the heels of other notable institutional investors redirecting their efforts towards single-family.
Annaly’s investment portfolio consists of agency mortgage-backed securities (MBSs), residential and commercial real estate, and middle-market lending. The firm invests in MBSs especially from Fannie Mae (OTCMKTS: FNMA) and Freddie Mac (OTCMKTS: FMCC), while Annaly also invests in nonagency residential credit.
Annaly ended 2020 with total assets of $101.6 billion. Of that, $94.6 billion was in agency securities, which are highly liquid. But now, Annaly is shipping off just over $2 billion of that portfolio to Slate Asset Management.
Refocusing its efforts
The $2.3 billion deal is expected to close in Q3 of this year. Annaly claims that this deal shouldn’t have much of an impact on its financial metrics, which include book value, core earnings, and dividends. Annaly wants to limit its exposure to CRE and will hold onto its book of residential investments.
What is a mortgage REIT?
Also referred to as an mREIT, mortgage REITs invest in mortgages, mortgage-backed securities, and related assets. In this way, mREITs aren’t directly invested in real estate but rather in the debt used to finance purchases. mREITs generally make money via the spread between their short-term borrowing costs and the income from the mortgages they’re invested in.
Annaly CEO and CIO David Finkelstein said, “The commercial real estate business has been an important component of Annaly’s differentiated investment model since 2013. This transaction delivers compelling execution for our shareholders and will provide additional capacity to further expand our leadership and operational capabilities across all aspects of the residential mortgage finance market, which has been the cornerstone of Annaly’s strategy since our founding.”
Not the only one focusing on single-family
Single-family has become all the rage for institutional investors.
Although not focused on mortgages, just the other day we heard Lennar (NYSE: LEN) announce that it will be shifting its focus to residential construction only while also building a single-family rental platform.
Meanwhile, JLL (NYSE: JLL) invested in Roofstock, a proptech start-up and single-family residential investment platform, earlier this month. Co-CEO of JLL Technologies Yishai Lerner said, “We see a strategic investment coupled with a commercial partnership as the best approach to offer state-of-the-art services to our investors seeking SFR exposure.”
And earlier this year, Blackstone (NYSE: BX) let us know that it was getting back into the single-family game when it announced a $1.6 billion acquisition of home design firm Logic Group Holdings.
The Millionacres bottom line
Single-family continues to be the focus for a lot of the big institutional investors. And it’s starting to get crowded. Buying a home has been tough for prospective homeowners; increased interest from institutional buyers isn’t going to make it any easier as supply gets further squeezed.