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A Look Inside: Annaly's Move to Counter Fed Policies, CreXus Bid

       A Look Inside: Annaly's Move to Counter Fed Policies, CreXus Bid

  PR Newswire

  NEW YORK, January 15, 2013

NEW YORK, January 15, 2013 /PRNewswire/ --

With the Recent Performance Weighing on Investors' Minds, Analysts Look to
Whether the Company Can Remain Strong in the Face of Considerable Change

In a bid to out-maneuver the Federal Reserve's recent policy changes involving
interest rate spreads, Annaly Capital Management, Inc. (NYSE: NLY) [ Full
Research Report ] ^(1) is looking to fully acquire shares of CreXus Investment
Corp. (NYSE: CXS) [ Free Research Report ] ^(2) . The acquisition is seen by
Annaly as a way provide stable risk-adjusted returns to shareholders, while at
the same time acting to diversify its asset portfolio.

Over the last 12 months, Annaly has been busy improving its broad capital
strategy. The company has successfully lowered its cost of capital through the
issuance of $1.5 billion of preferred equity and convertible notes (standing
at a weighted average of 6.3%), while also extending the duration of its
borrowings by 93 days. It has also restructured capital by repurchasing $447.1
million of convertible notes and finally, announcing an up to $1.5 billion
common stock repurchase program.

The proposal to acquire CreXus is one of Annaly's plans to continue delivering
income for its investors. In recent years, Annaly has received plenty of
attention because of its double-digit dividend. Despite a drop in value in the
fourth quarter of last year, analysts assert that Annaly will continue to
perform well in 2013. This is because the real estate investment trust (REIT)
has shown a long-term ability to manage its business and maintain strong cash
flows.

Annaly generates net income by investing in mortgage-backed securities,
earning the spread between its own cost of capital and interest payments
received on the securities. The company also receives dividends from its
subsidiaries, many of which are engaged in a similar business structure.
Because the company's business model depends largely on Federal Reserve's
policies, the company may experience a downturn soon. In the third quarter of
last year, the Federal Reserve lowered the interest rate spreads, cutting
income for REITs like Annaly. The Federal Reserve also announced its plans to
buy mortgage-backed securities worth $40 billion every month, causing interest
rate spreads to fall further. As a result, Annaly reported $0.45 earnings per
share for the fourth quarter of 2012, missing the consensus estimate of $0.47
by $0.02.

To counter the Fed's recent actions, Annaly is diversifying its portfolio by
offering to buy CreXus Investment. CreXus will give Annaly access to
commercial mortgage-backed securities along with residential mortgages. The
company issued the following statement on its purchase, "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 percent of our shareholders' equity to real estate
assets other than Agency mortgage-backed securities." This strategy may soon
pay off.

CreXus is a commercial real estate firm with the same business model as
Annaly. Since Crexus' commercial loan portfolio earns four times more than
that of Annaly's portfolio of residential mortgage-backed securities, the deal
will potentially increase income for Annaly and give it leverage in the
commercial mortgage-backed securities market.

Since Annaly already owns 12.4% of CreXus' shares, it only needs to pay $839
million more to fully acquire the company. This deal will help increase
Annaly's net interest rate spread. Furthermore, analysts believe that Annaly
should be able to cope due to sufficient amount of cash flow from operations,
growth in earnings per share and expanding profit margins.

As of now, the deal has been received by the Board of Directors of CreXus and
is awaiting approval.

Reference Links:

^(1) The Full Research Report on Annaly Capital Management - including full
detailed breakdown, analyst ratings and price targets - is available to
download free of charge at: [
http://www.nationaltradersassociation.org/r/entire_report/f84a_NLY ]

^(2) The Free Research Report on CreXus Investment Corp. - including full
detailed breakdown, analyst ratings and price targets - is available to
download free of charge at: [
http://www.nationaltradersassociation.org/r/entire_report/da3a_CXS ]

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