DEFA14A: Annaly Capital Management Enhances Executive Compensation Program and Reports Strong 2024 Performance

Annaly Capital Management outlines executive compensation enhancements, reports a total economic return of 11.9%, and addresses a stockholder proposal regarding the right to act by written consent.

Summary

• Annaly Capital Management has enhanced its position as a leader in the residential housing finance market.
• The company achieved strategic milestones including partnerships with Fannie Mae, Freddie Mac, and Rocket Mortgage.
• Annaly remained the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS in 2024.
• The company grew to the third largest purchaser of bulk MSR in 2024.
• Executive compensation was enhanced for 2024 and further changes are planned for 2025 based on stockholder feedback.
• The company delivered a total economic return of 11.9% in 2024.
• Annaly executed a record 21 whole loan securitizations totaling $11.0 billion.
• The company ended 2024 with $6.9 billion of assets available for financing.
• Annaly raised $1.6 billion of accretive common equity through its at-the-market sales program.
• Operating expenses were maintained at 1.44%, below the mREIT peer average of 6.55%.
• Three directors will conclude their service on the Board following the Annual Meeting.
• The Board recommends voting against the stockholder proposal to adopt the right to act by written consent.
• The 2025 Annual Meeting of Stockholders will be held virtually on May 14, 2024, at 9:00 am EST.
• The Board recommends voting for all company proposals and against the advisory stockholder proposal.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial performance, strategic partnerships, and responsive executive compensation changes. The company's leadership position and commitment to stockholder engagement contribute to a favorable sentiment.

Positives

• Annaly achieved a strong total economic return of 11.9%.
• The company successfully executed a record number of whole loan securitizations.
• Annaly maintained low operating expenses compared to its peers.
• The company is responsive to stockholder feedback on executive compensation.
• Annaly enhanced its senior leadership with the promotion of Mike Fania to Co-Chief Investment Officer.
• The company raised $1.6 billion of accretive common equity.

Negatives

• The document highlights a stockholder proposal to adopt the right to act by written consent, which the Board recommends voting against, indicating potential disagreement with some shareholders.
• Three directors will conclude their service on the Board following the Annual Meeting.

Risks

• Changes in interest rates, yield curves, and prepayment rates could impact results.
• The availability of mortgage-backed securities and financing could affect performance.
• Changes in market value of assets and general economic conditions pose risks.
• Credit risks related to investments in mortgage-backed securities and mortgage servicing rights exist.
• The company faces operational risks, including cybersecurity incidents.
• Changes in government regulations or policy could affect the business.
• The company's ability to maintain REIT status and exemption under the Investment Company Act of 1940 are crucial.

Future Outlook

The company is committed to a broader redesign of the executive compensation program for 2025 and will continue to allocate capital across the residential housing finance market.

Management Comments

• The Company continued to allocate capital across the residential housing finance market in 2024, generating strong earnings and enhancing our position as the largest dedicated housing finance REIT through a number of operating achievements.

Industry Context

Annaly's focus on residential mortgage finance and its position as the largest dedicated housing finance REIT places it in competition with other mREITs and financial institutions. The company's partnerships with Fannie Mae, Freddie Mac, and Rocket Mortgage highlight its strategic relationships within the industry.

Comparison to Industry Standards

• Annaly's operating expenses of 1.44% are significantly below the mREIT peer average of 6.55%, indicating efficient management.
• The company's total economic return of 11.9% is a key metric for comparison against other mREITs such as AGNC Investment Corp. and Two Harbors Investment Corp., though direct comparisons would require their respective full-year results.
• The $11.0 billion in whole loan securitizations is a substantial figure, suggesting a high level of activity compared to smaller peers in the mortgage REIT space.

Management Changes

Corporate Governance

Stakeholder Impact

• Stockholders will benefit from the company's strong financial performance and enhanced corporate governance practices.
• Employees may be affected by changes in executive compensation and leadership.
• The company's partnerships with Fannie Mae, Freddie Mac, and Rocket Mortgage impact the broader housing finance market.

Next Steps

• The company will hold its 2025 Annual Meeting of Stockholders on May 14, 2024.
• The MDC Committee will continue to implement enhancements to the executive compensation program for 2025.

Key Dates

Keywords

executive compensation, mortgage REIT, MSR, residential mortgage finance, Annaly Capital Management, proxy statement, corporate governance, stockholder engagement