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| 8-K - FORM 8-K - DYNEX CAPITAL INC | d8k.htm |
 Dynex
Capital, Inc. Investor Presentation
June 15, 2011
Exhibit 99.1 |
 2
Safe Harbor Statement
NOTE:
This presentation
contains
“forward-looking
statements”
within
the
meaning
of
the
Private
Securities
Litigation Reform Act of 1995, including statements about projected future investment
strategies and leverage ratios, financial performance, the projected impact of NOL
carryforwards, future dividends paid to shareholders, and future investment
opportunities and capital raising activities. The words “will,”
“believe,”
“expect,”
“forecast,”
“anticipate,”
“intend,”
“estimate,”
“assume,”
“project,”
“plan,”
“continue,”
and similar expressions also identify forward-looking statements that are inherently
subject to risks and uncertainties, some of which cannot be predicted or quantified.
Although these forward-looking statements reflect our current beliefs, assumptions
and expectations based on information currently available to us, the Company’s
actual results and timing of certain events could differ materially from those
projected in or contemplated by these statements. Our forward-looking statements
are subject to the following principal risks and uncertainties: our ability to find suitable
reinvestment opportunities; changes in economic conditions; changes in interest rates and
interest rate spreads; our investment portfolio performance particularly as it relates
to cash flow, prepayment rates and credit performance; the cost and availability of
financing; the cost and availability of new equity capital; changes in our use of
leverage; the quality of performance of third-party servicer providers
of
our
loans
and
loans
underlying
our
securities;
the
level
of
defaults
by
borrowers
on
loans we have securitized; changes in our industry; increased competition; changes in
government regulations affecting our business; government initiatives to support the
U.S financial system and U.S. housing and real estate markets; GSE reform or other
government policies and actions; and an ownership shift under Section 382 of the
Internal Revenue Code that impacts the use of our tax NOL carryforward. For additional
information, see the Company’s Annual Report on Form 10-K for the year ended
December 31, 2010, and other reports filed with and furnished to the Securities and Exchange
Commission. |
 3
Our Guiding Principles
Our Core Values
Generate dividends for our shareholders
Manage leverage conservatively
Remain owner-operators
Maintain a culture of integrity and employ the highest ethical standards
Provide a strong risk-management culture
Focus on long-term shareholder value while preserving capital
Our Mission
Manage a successful public mortgage REIT with a focus on capital
preservation and providing risk-adjusted returns reflective of a diversified,
leveraged fixed income portfolio. |
 4
DX Snapshot
Company Highlights
Internally managed REIT commenced operations in 1988
Significant insider ownership and experienced management team
Diversified investment strategy in residential and commercial mortgage assets
Large NOL carryfoward for unique total return opportunity
Market Highlights
NYSE Stock Ticker
DX
Shares Outstanding (6/10/2011)
40,343,159
Quarterly Dividend (2Q 2011)
$0.27
Share Price (6/10/2011)
$9.71
Price to Book (6/10/2011)
1.02
Market Capitalization (6/10/2011)
$391.7 million |
 5
Long Term Performance
Five Year Total Return
Source: SNL Financial.
(1)
Based on beginning share price of $6.75 on 6/9/06 and ending share price of $9.72 on 6/9/11.
Assumes reinvestment of dividends. (2)
SNL U.S. Finance REIT: Includes all publicly traded (NYSE, NASDAQ, OTC BB, Pink Sheets)
Investment Companies with the following primary focuses: MBS REIT, Mortgage REIT, and
Specialty Finance REITs in SNL’s coverage universe. (1)
(2) |
 6
Management Team
Experienced team of professionals with a combined 80 years of experience
managing mortgage REITs and mortgage portfolios
•
–
32 years of experience in the industry and 7 years at Dynex
–
Chairman since 2003 and CEO since 2008
–
Managing Member of Talkot Capital, LLC
–
16 years at Merrill Lynch and Salomon Brothers
•
Byron
L.
Boston
–
Chief
Investment
Officer
–
27 years of experience in the industry with 3 years as CIO at Dynex
–
13 years managing levered multi-product portfolios at Freddie Mac and Sunset Financial
Resources –
11 years trading MBS on Wall Street
–
3 years Senior Corporate Lending Officer at Chemical Bank
•
Stephen
J.
Benedetti
–
Chief
Financial
Officer
and
Chief
Operating
Officer
–
21 years of experience in the industry
–
Employed at Dynex for 16 years in various treasury, risk management and financial reporting
roles –
Managed Dynex from 2002 –
2007
–
Began career at Deloitte & Touche
•
Portfolio
Management
Team
–
4 member team with a collective 55 years of industry experience with broad and deep skill sets
in both agency and non-agency investment strategies
Thomas B. Akin –
Chairman and Chief Executive Officer |
 7
Diversified Investment Strategy
Diversified Investment Strategy
that invests in a combination of Agency and non-Agency
residential and commercial assets to maximize risk adjusted total return.
DURATION
Examples include:
-
Short Duration Agency
ARMs
-
Seasoned non-Agency
RMBS & CMBS
Target Strategy
Examples include:
-
Floating Rate Mezzanine
Examples include:
-
30 year Agency MBS
Current Coupon
-
Super Senior CMBS
Examples include:
-
Credit Sensitive
-
Securities Rated below BBB
Long
Short
FUNDING:
•Prudent leverage
•Diversified counterparty profile to
avoid concentration risk
•Active maturity management to
ensure stable financing profile
Lower Credit Quality /
Short Duration
Lower Credit Quality /
Long Duration
Higher Credit Quality /
Short Duration
Higher Credit Quality /
Long Duration |
 8
Myriad of MREIT Risks
•
Interest Rate Risk –
net duration gap
•
Extension Risk –
limited duration extension is key
•
Credit Risk –
higher probability of repayment vs. higher yield
•
Leverage Risk –
liquidity of assets financed is key
•
Prepayment Risk –
most attractive theme over the past 3 years
•
Management Risk –
management and shareholder alignment
•
Regulatory Risk –
uncertainty around complex business model
•
Financing Risk –
most important risk |
 9
Investment Portfolio as of 3/31/11
A
2%
AA
1%
Below A
3%
AAA
94%
Seasoned
DX
RMBS/loans
3%
Agency MBS
82%
Other
CMBS/
RMBS
3%
Seasoned
DX
CMBS/loans
12%
•
High quality portfolio of primarily Agency securities, as well as seasoned loans originated by
Dynex in 1990’s
•
94% AAA securities, 97% rated A or higher
•
Relative to other diversified REITs Dynex maintains a higher credit quality portfolio
(1) Percentages based on asset carrying basis.
Composition
(1)
Ratings
(1) |
 10
Credit Portfolio Comparisons
$101.43
$76.73
$-
$20
$40
$60
$80
$100
$120
DX
Wgt Average of Other Hybrid
REITs
Average 2010 Year-End Portfolio Non-Agency Price
(1) Consists of the weighted average of dollar prices for non-Agency investments as of
12/31/10 for MFA, IVR, and TWO. (1) |
 11
Interest Rate Risk
Change in Value from Change in Rates
Portfolio Value
(2)
Equity Value
(3)
Ticker
+50
+75
+100
+75
+100
AGENCY MBS
NLY
6.3
-1.80%
-2.50%
-15.8%
ANH
7.1
-2.60%
-18.5%
HTS
6.1
-0.53%
-1.75%
-10.7%
AGNC
7.6
-0.40%
-1.10%
-8.4%
CYS
8.1
-2.14%
-3.25%
-26.3%
ARR
9.5
-0.79%
-1.74%
-16.5%
DIVERSIFIED MBS
DX
5.2
-0.50%
-1.10%
-5.7%
IVR
5.3
-0.56%
-1.24%
-6.6%
MFA
2.9
-0.54%
-1.19%
-3.5%
TWO
3.8
-0.20%
-0.40%
-2.0%
CIM
1.8
-2.50%
-3.79%
-6.8%
(1) As
disclosed
in
each
company’s
10-Q
for
quarter
ended
March
31,
2011.
Ratios
are
dependent
on
each
company’s
method
of
calculation.
(2) As of March 31, 2011, as disclosed in each company’s 10-Q for
quarter ended March 31, 2011. Percentages are dependent on each company’s assumptions, as
disclosed in their 10-Qs.
(3) Unless the figure is otherwise disclosed in a company’s 10-Q for
quarter ended March 31, 2011, equals estimated % decrease for the +75/+100 scenarios
multiplied
by
estimated
company
leverage,
and
is
meant
to
show
the
potential
change
in
equity
value
for
the
corresponding
change
in
rates.
Estimated
Company
Leverage
(1) |
 Interest
Rate Risk as of March 31, 2011
Basis Point Change in Mortgage Spreads
Basis Point Change in
Interest Rates
-
50
-
25
0
+25
+50
+100
0.9%
(0.2)%
(1.1)%
(2.1)%
(3.1)%
+50
1.5%
0.5%
(0.5)%
(1.5)%
(2.4)%
0
2.0%
1.0%
–
(1.0)%
(1.9)%
-50
2.4%
1.4%
0.4%
(0.6)%
(1.6)%
-100
2.6%
1.6%
0.6%
(0.4)%
(1.3)% |
 13
Important Macro Themes
Multiple factors combining to depress economic activity
Fed funds rate at historic lows with a steep yield curve
Global risk remains high
Government policy/regulations to influence investment returns
Both GSE’s and U.S. government are reducing MBS holdings
Improved financing environment
Low volatility environment rewarding leveraged investment
strategies
Tighter credit standards have created more predictable
mortgage cash flows and better investment opportunities
Securitization markets are healing slowly but unevenly |
 14
Potential Return Profile for Prospective
Investments as of June 13, 2011
The above portfolio is for illustrative purposes only, does not represent actual or expected
performance and should not be relied upon for any investment decision. The range of
returns on equity is based on certain assumptions, including assumptions relating to asset allocation
percentages and spreads where new mortgage assets can be acquired versus a current cost of
funds to finance acquisitions of those assets. Rates
used
represent
a
range
of
asset
yields
and
financing
costs
based
on
data
available
as
of
the
date
referenced
above.
Any
change
in
the
assumed yields, financing costs or assumed leverage could materially alter the company’s
returns. The performance results above do not include assumption for the deduction of
investment advisory fees, expenses, or commissions. The performance results assume that no cash
was
added
to
or
assets
withdrawn
from
the
portfolio
and
that
all
dividends,
gains
and
other
earnings
in
the
portfolio
were
reinvested.
There
can be no assurance that asset yields or financing costs will remain at current levels. For a
discussion of risks that may affect our ability to implement
strategy
and
other
factors
which
may
affect
our
potential
returns,
please
see
the
section
entitled
“Risk
Factors”
in
our
Annual
Report on Form 10-K for the year ended December 31, 2010.
Investment
Range of
Prices
Range of
yields
Range of net
spread to
funding
Range of
ROEs
Agency
RMBS
103-108
2.3%-
3.8%
1.3%-3.0%
13%-27%
CMBS
105-109
3.5%-4.0%
1.3%-2.3%
12%-20%
Non–Agency
‘AAA’
RMBS
90-102
3.6%-6.0%
2.6%-4.0%
14%-21%
‘AAA’
CMBS
100-105
4.8%-6.1%
2.0%-3.0%
15%-16% |
 15
Balance Sheet Overview
as of March 31, 2011
(1) Associated financing for investments includes repurchase agreements, securitization
financing issued to third parties and TALF financing (the latter two of which are
presented on the Company’s balance sheet as “non-recourse collateralized financing”).
(2) Includes hedging instruments, cash and cash equivalents, and other assets/other
liabilities. •
5.2x actual leverage
•
Unsecuritized single family and commercial mortgage
loans
•
Loans pledged to support repayment of securitization
bonds issued by the Company
•
Originated in the mid 1990’s
•
Principal balance of $15.7 mm
•
1Q 2011 weighted average annualized yield of 5.54%
•
71.9% “AAA”
and “AA”
rated
•
Principal balance of $244.7 mm
•
1Q 2011 weighted average annualized yield of 5.96%
•
~78.3% “AAA”
and “AA”
rated
•
Fixed rate agency CMBS
•
$1,340.4 mm in Hybrid Agency ARMs
-
Weighted average months-to-reset of 37 months
•
$280.2 mm in Agency ARMs
-
Weighted average months-to-reset of 6 months
Notes
5.5 –
6.5x
–
2 –
3x
4 –
5x
4 –
5x
7 –
8x
7 –
9x
Leverage
Target
$383.5
($1,976.3)
$2,359.8
Total
59.0
(21.2)
80.2
Other
(2)
1.2
–
1.2
Other
investments
40.2
(103.2)
143.4
Securitized
mortgage loans
3.4
(11.5)
14.8
Non-Agency
RMBS
42.1
(208.3)
250.4
Non-Agency
CMBS
74.0
(175.1)
249.1
Agency CMBS
$163.6
($1,457.0)
$1,620.7
Agency RMBS
Allocated
Shareholders
’
Equity
Associated
Financing
(1)
/
Liability
Carrying
Basis
Asset
Carrying
Basis
•
5.2x actual leverage
•
Unsecuritized single family and commercial mortgage
loans
•
Loans pledged to support repayment of securitization
bonds issued by the Company
•
Originated in the mid 1990’s
•
Principal balance of $15.7 mm
•
1Q 2011 weighted average annualized yield of 5.54%
•
71.9% “AAA”
and “AA”
rated
•
Principal balance of $244.7 mm
•
1Q 2011 weighted average annualized yield of 5.96%
•
~78.3% “AAA”
and “AA”
rated
•
Fixed rate agency CMBS
•
$1,340.4 mm in Hybrid Agency ARMs
-
Weighted average months-to-reset of 37 months
•
$280.2 mm in Agency ARMs
-
Weighted average months-to-reset of 6 months
Notes
5.5 –
6.5x
–
2 –
3x
4 –
5x
4 –
5x
7 –
8x
7 –
9x
Leverage
Target
$383.5
($1,976.3)
$2,359.8
Total
59.0
(21.2)
80.2
Other
(2)
1.2
–
1.2
Other
investments
40.2
(103.2)
143.4
Securitized
mortgage loans
3.4
(11.5)
14.8
Non-Agency
RMBS
42.1
(208.3)
250.4
Non-Agency
CMBS
74.0
(175.1)
249.1
Agency CMBS
$163.6
($1,457.0)
$1,620.7
Agency RMBS
Allocated
Shareholders
’
Equity
Associated
Financing
(1)
/
Liability
Carrying
Basis
Asset
Carrying
Basis
(Dollars in Millions)
_ |
 16
Earnings –
Paid and Retained
We Pay a Dividend AND Generate and Retain Earnings
(Utilizing our NOL) to Grow Book Value
($0.10)
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
Dividends Declared
Excess Earnings Retained |
 17
Investment Portfolio Income and Spread
$ in thousands
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Net interest income after provision
Net interest spread |
 18
Why Dynex
Excellent long term performance record
Strong and defensive balance sheet positioned to weather market
volatility
Experienced management with a track record of disciplined capital
deployment through multiple economic cycles
Alignment of interests with shareholders due to owner-operator
structure
Complementary investment opportunities exist with attractive
return profiles consistent with our investment philosophy
Opportunistic capital raises have increased shareholder value
without significant book value dilution |