Shareholder Letter

Dear Fellow Shareholders,


One of my first priorities upon becoming your CEO in September 2015 was expanding and enhancing the Company’s relationships with our retail and institutional shareholders. Since that time, we have embarked on a comprehensive marketing campaign including nearly 200 investor meetings. In addition, we’ve redoubled our efforts to engage in meaningful dialogue around critical governance issues. These efforts included outreach to investors representing 65% of shares held by institutional shareholders, including 45 of our 50 largest shareholders. We deeply value the insights we have gained from our shareholders throughout this process and look forward to continuing to find new ways to engage with as many of you as possible over the coming year.

Our prudent risk management model is reflective of the fact that within our shared capital model, our investment teams’ interests are aligned with our shareholders. In 2016, we expanded our Employee Stock Ownership Guidelines whereby over 40% of our employees were not granted stock, but rather, were asked to purchase predetermined amounts of shares in the open market based on certain criteria including seniority, compensation level and role. Establishing more of an ownership culture – for the long term – throughout the Firm is extremely important to me and I’m pleased that as of March 31, 2017, all individuals subject to these guidelines either met, or within the applicable period are expected to meet the stock ownership guidelines. This broad-based initiative is not just unique in our industry, it is unique in all of corporate America.

It is critical to highlight that while we have made broad investments over the past few years in both our investment platforms and financing strategies, we have not asked our shareholders to bear any of the incremental costs for this growth and diversification. We currently operate our multi-strategy model with four distinct investment groups, in addition to a servicing platform, on a highly efficient basis compared to the monoline companies in the industry. Consequently, our outsized returns are in part attributable to our diversified, scalable model, with an operating expense to equity ratio of 1.59%, 51% lower than the average of our industry peers.(1) As a percentage of assets, this ratio is merely 0.23%, or 66% lower than the average mortgage REIT.(2)

In the first quarter of 2017, we distributed another $0.30 per share dividend to our shareholders — the same exact quarterly dividend we have now offered for over three years, or 14 consecutive quarters. It is important to note, and it is no coincidence, that our outstanding performance during this time period coincides with the arrival of most of our current investment and financing teams. In comparison, over that same time period, 75% of the companies in the residential mREIT sector have cut dividends at least once – in fact, there have been 47 dividend cuts in total within this sector. Annaly’s total return of 61% since 2014 has outperformed all yield-oriented equity strategies and has far exceeded the returns of the S&P 500 and the Bloomberg Mortgage REIT indices by 66% and 33%, respectively. Specifically with respect to performance in 2016, despite the Oil Crash, Brexit and the one of the largest single-quarter moves in the 10-year Treasury this century, we delivered a total shareholder return of 19%.

Finally, in October of 2017 Annaly will celebrate its 20th anniversary as a public company. We have come a long way since the Company’s $120 million initial public offering in 1997 to our industry leading model and diversified platform with over $12.5 billion of capital as of December 31, 2016. For the benefit of our shareholders, Annaly has transformed over time – the fundamental strategic characteristic of all market leaders. Within our four complementary investment groups, we continue to be uniquely positioned to capture market share in the competition for superior asset selection and most favorable financing structures and terms. We have evolved into a diversified capital manager and equity yield investment option noticeably distinct from the mortgage REIT universe in terms of our size, liquidity, diversity and stability.

I am confident and energized by all of our opportunities and strongly believe we will continue to reward our shareholders while attracting incremental investors in this challenging marketplace, where conservatively-valued yield manufacturing businesses like Annaly are increasingly difficult to find.

I look forward to welcoming many of you to our 2017 Annual Meeting of Stockholders.

Sincerely,


Kevin G. Keyes
Chief Executive Officer & President
April 11, 2017

  1. Represents the % difference of operating expense as a % of average equity for Annaly vs. the Bloomberg mREIT Index (“BBREMTG”) average.
  2. Represents the % difference of operating expense as a % of average assets for Annaly vs. the BBREMTG average.

Notes: From 2012 to 2016. Average excludes BBREMTG members with market capitalization below $200 million. Operating Expense is defined as: (i) for internally-managed BBREMTG members, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for externally-managed BBREMTG members, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses.