UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Securities Exchange Act of 1934
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Anworth Asset Management Corporation (“Anworth”) furnished on May 2, 2014 the investor presentation filed herewith as definitive additional proxy materials, to each of Institutional Shareholder Services Inc., Glass, Lewis & Co. and Egan Jones. The investor presentation also is being furnished to, and will be used at certain meetings after the date hereof with, certain stockholders of Anworth in connection with Anworth’s 2014 annual meeting of stockholders to be held on May 22, 2014.
The investor presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, may involve known and unknown risks, uncertainties and assumptions. These forward-looking statements relate to Anworth’s current expectations and are subject to the limitations and qualifications set forth in the investor presentation as well as in Anworth’s other documents filed with the U.S. Securities and Exchange Commission, including, without limitation, that actual events and/or results may differ materially from those projected in such forward-looking statements.
 Investor Presentation
May 2, 2014 |
 Today’s attendees
1
Chairman, President and CEO since formation in 1997
Chairman,
CIO
and
co-founder
of
Pacific
Income
Advisers
(PIA),
an
investment
advisory
firm,
and
Chairman
of
Syndicated Capital, Inc., a registered broker-dealer
Holds a Bachelor of Science in Statistics from Stanford University and a Masters
in Business Administration from the University of Tennessee
A Chartered Financial Analyst charterholder and a Certified Employee Benefit
Specialist Lloyd McAdams
President & CEO
Director and EVP since June 2002 and CIO since January 2003 (joining as a VP in
June 1998) Joined PIA in 1998 and holds the position of Senior Vice
President, with a specialty in mortgage-backed securities Previously
employed by DLJ Securities as a mortgage-backed security trader and research analyst
Holds a Master of Arts degree in Economics from the University of Chicago and a
Bachelor of Science degree in Economics from the Wharton School of
Business A Chartered Financial Analyst charterholder
Joseph E.
McAdams
Chief Investment
Officer, EVP
Partner with Acre Corporation, a private equity commercial real estate firm
located in Pleasanton, California From 2005 –
2007, Mr. Maron was a founding principal of Birchmont Capital Advisors, a $1
billion real estate private equity fund
Prior to forming Birchmont, spent 23 years in investment banking, leading Credit
Suisse’s Los Angeles office and West Coast financial institutions
practice Served on the Board of Directors of True Religion Brand Jeans until
its sale to a private equity firm in July 2013 Holds a Bachelor of Arts
degree from McGill University in Montreal, and holds a Master of Business Administration
degree in Finance from the Wharton School of Business
Mark Maron
New Proposed Board
Member
Lead independent director with 10 years of REIT experience
Is
a
director
of
38
mutual
funds
managed
by
Capital
Research
and
Management
and
is
the
non-Executive
Chairman
of
American Funds Insurance Series as well as a director of Office Depot
Previously the Chairman, President and CEO of Telecredit, Inc., former Chairman of
In-Q-Tel, Inc., as well as former Director of the Board of Alex
Brown Incorporated and Bankers Trust Corporation Holds a Bachelor of Arts
degree from Yale University Lee A Ault, III
Lead independent
director |
 Discussion agenda
Introduction
Board of Directors
Residential mortgage REIT primer
Anworth’s actions, already underway, to continue creating long-term
shareholder value Perspectives on Western’s proxy
Conclusion
2 |
 Anworth
has a diversified Board with strong REIT experience
3
All directors have significant experience in the REIT sector
Directors have over 60 years of combined REIT experience
REIT
experience
All directors and nominees possess financial expertise
Financial
expertise
Directors
have
a
strong
balance
of
REIT
and
large
public
company
Board
experience
Apart from REITs, directors also have financial, legal and political
expertise Strong Board
alignment
with industry
Nominated one new independent director (Mark S. Maron) with extensive real estate
and financial services experience
Established a Strategic Review Committee comprised of independent directors
Refreshed
Board
Two-thirds of the Board are independent directors
100% independent audit, compensation and nominating/corporate governance
committees Lead independent director is rotated annually
Majority voting in uncontested elections
Governance best
practices
Minimal anti-take
over provisions
All directors are elected annually
No rights plan
Opted out of Maryland Control Share Statute
Amendment
of
“advance
notice”
provisions
requires
stockholder
approval |
 Anworth
has strong independent Board members
4
Lee A.
Ault,
III
has
been
a
director
of
our
company
since
October
2002.
From
1968
to
1992,
Mr.
Ault
was
Chief
Executive
Officer
of
Telecredit,
Inc.,
a
publicly
traded payment services company. He also served as President of Telecredit, Inc.
from 1968 until 1983 and as Chairman of the Board from 1983 until 1992. From
1999 until 2006, Mr. Ault served as Chairman of the Board of In-Q-Tel, Inc., a technology venture company funded principally by the Central Intelligence
Agency (CIA). From 1999 through 2011, Mr. Ault served as a director, and part of
the time as Chairman of the Board, of several mutual funds managed by
Capital Research and Management Company, a subsidiary of The Capital Group. From
1998 until 2011, Mr. Ault served as a director of Office Depot, Inc.
Mr.
Ault also served as a director of the following public companies: Alex Brown
Incorporated; Bankers Trust Corporation; Equifax, Inc.; Viking Office Products;
and Sunrise Medical Corporation. Mr. Ault holds a Bachelor of Arts degree from Yale
University. Joe
E.
Davis
has
been
a
director
of
our
company
since
its
formation.
He
has
been
a
private
investor
since
1982.
Mr.
Davis
currently
serves
as
a
director
(since
2000) of Natural Alternatives International, Inc. as well as a member of the Audit
Committee (serving as the Chairman of the Audit Committee since 2004), a
member of the Human Resources Committee (since 2003) and a member of the Nominating
Committee of Natural Alternatives International, Inc. (since 2004).
From
1991
to
2007,
Mr.
Davis
served
as
a
director
of
several
mutual
funds
managed
by
Capital
Research
and
Management
Company.
Previously,
Mr.
Davis
served as Chairman of the Board of Linear Corporation (1987-1988); President
and Chief Executive Officer of BMC Industries, Inc. (1985); and President and
Chief
Executive
Officer
of
National
Health
Enterprises,
Inc.
(1974-1982).
Formerly,
Mr.
Davis
was
a
director
and
a
member
of
the
Audit
Committee
of
BMC
Industries,
Inc.
and
Wilshire
Technologies,
Inc.,
and
a
director
of
Freymiller
Trucking,
Inc.
Mr.
Davis
graduated
from
the
University
of
Texas
with
a
Bachelor of
Science in Chemistry. He holds a Master of Business Administration degree from
Harvard Graduate School of Business Administration. Robert C. Davis
has been a director of our company since May 2005. Mr.
Davis has been the Chief Executive Officer of Optimus EMR, Inc. since 2000. Prior
to
that,
he
served
as
Chief
Executive
Officer
and
Chairman
of
the
Board
of
Amcare,
Inc.
and
as
a
director
of
Roger
Cleveland
Golf
Company,
Inc.
Mr.
Davis
holds both
a
Master
of
Business
Administration
degree
in
Finance
and
a
Bachelor
of
Science
degree
in
Accounting
from
the
University
of
Southern
California.
Mark
S.
Maron
is
a
partner
with
Acre
Corporation,
a
private
equity
commercial
real
estate
firm
located
in
Pleasanton,
California.
From
September
2005 to
December 2007, Mr. Maron was a founding principal of Birchmont Capital Advisors,
LLC, (“Birchmont”) a real estate private equity firm focused on multi-family
properties.
After
the
fund
closed
in
January
2007,
Birchmont
was
renamed
JRK
Multifamily
and
currently
has
3
funds
outstanding
with
over
$1
billion
in
equity
under
management.
While
no
longer
actively
involved
with
JRK
Multifamily,
Mr.
Maron
remains
a
General
Partner
of
the
fund.
Prior
to
forming
Birchmont,
Mr.
Maron
spent
23
years
as
an
investment
banker,
including
18
years
at
Credit
Suisse,
where
he
ran
the
firm’s
Investment
Banking
Division
in
Los
Angeles.
Mr.
Maron served on the Board of Directors of True Religion Brand Jeans until its sale
to a private equity firm in July 2013. Mr. Maron holds a Bachelor of Arts
degree from McGill University in Montreal, Canada, and holds a Master of Business
Administration degree in Finance from the Wharton School of Business. |
 Key
takeaways 5
Consistent earnings since inception, despite varying interest rate environments,
returning 267% compared to 67% for the FTSE NAREIT Mortgage REITs
Index Anworth has provided shareholders with a total return of 68% over the
last 5 years In 2014, Anworth has a total return of 34%
Anworth’s historical return on average equity is more stable and less
volatile than peers
Performance
Investing in predominately adjustable rate assets funded by hedged liabilities has
provided above average long term risk adjusted returns with reduced
volatility Management historical focus on maximizing shareholder value
through strategic equity issuances and accretive buybacks
Established diversification program to balance portfolio in changing interest rate
and regulatory environments
Strategy
Anworth’s management fees are below the average and median of Agency mortgage
REITs
The Company has established a Strategic Review Committee to enhance portfolio
diversification
Has retained Credit Suisse to review strategic alternatives
A new independent Board member was nominated in Q1 2014
Governance
Source:
SNL Financial. Market data as of 4/25/14.
(1)
Peers include CMO, CYS and HTS. |
 REITs
have varying investment strategies 6
Source:
Company filings. Market data as of 4/25/14.
(1)
Includes 15 year fixed rate securities.
(2)
At the end of 2012 and 2013, AGNC’s portfolio contained fixed rate assets of
64% and 38%, respectively. The chart below is broadly reflective of the
current strategies of public mortgage REITs Strategies are continuously
evolving as REIT managers adapt to changing market conditions Residential
mortgage REITs Agg. market cap: $43.2 billion
Agency REITs
Agg. market cap: $26.4 billion
Agency and non-Agency
(Hybrid REITs)
Agg. market cap: $16.8 billion
AMTG
CHMI
CIM
JMI
MFA
MTGE
NRZ
OAKS
PMT
RWT
TWO
ZFC
DX
IVR
MITT
Diversified mortgage
REITs
Agg. market cap: $3.0 billion
= Peers as defined by Western
Principally
adjustable rate
(1)
ANH
CMO
CYS
HTS
Principally
fixed rate
AGNC
ARR
EARN
NLY
WMC |
 Anworth’s portfolio primarily comprises of
adjustable rate securities
7
Source:
Company filings for year end 2013.
(1)
CMO, NLY and ARR do not disclose breakdown of fixed rate portfolio.
(2)
AGNC’s 20/30 year fixed rate portfolio percentages were over 60% for 2011 and
2012. Peer group
Other Agency REITs
(1)
(1)
(1)
(2)
20/30 year fixed rate
15 year fixed rate
Adjustable rate |
 Anworth’s asset yield compares favorably to the peer
group
8
Source:
Company filings for year end 2013.
(1)
Asset
yield
calculated
as
average
of
quarterly
reported
yield
in
each
quarter
of
2013,
adjusted
for
amortization
of
premium,
where
reported.
Peer group
Other Agency REITs
In the current interest rate environment, fixed rate assets carry higher nominal
yields than adjustable rate assets
Commensurate with greater interest rate and prepayment risk
|
 Anworth’s cost of funds reflects its conservative
strategy
9
Source: Company filings for year end 2013.
(1) Cost of funds calculated as
average of quarterly reported costs in each quarter of 2013. Peer group
Other Agency REITs
Given the depth and breadth of the repo market, the cost of funds for Agency REITs
is highly correlated to the hedging strategy
Higher portfolio interest costs
longer debt duration
lower net portfolio risk
Cost of funds comparison
(1) |
 10
Source:
Company filings, FactSet and SNL Financial.
(1)
Return on equity calculated as reported GAAP net income available to common
shareholders divided by average total common equity. (2)
Average of peers including CMO, CYS and HTS.
(3)
Average of other Agency including AGNC, ARR, EARN, NLY and WMC.
Consequently, Anworth has stable and less
volatile returns
(2)
(3)
Over
the
last
3
years,
Anworth
has
a
return
on
average
equity
of
10.2%,
exceeding
peers’
return
on
average equity of 9.7%
18.2%
12.5%
13.3%
9.7%
7.6%
24.5%
11.3%
21.7%
15.9%
(8.3%)
17.0%
16.8%
6.6%
15.8%
4.4%
2009
2010
2011
2012
2013
Return on common equity
(1)
ANH
Peers
Other Agency |
 Anworth’s unlevered beta shows the lower volatility
of the investment strategy
Source:
BARRA and company filings for year end 2013.
Note:
Unlevered betas based on respective company’s capital structure.
Peer group
Other Agency REITs
Anworth’s unlevered beta of 0.09 is lower than peer and other REITs average of
0.13 Western’s peer set has an average beta of 0.14
Western’s other
peers
11
= Western’s peers |
 12
Source:
Bloomberg data as of 4/25/14.
In addition to strong recent total returns, Anworth has significantly outperformed
the S&P 500 and the FTSE NAREIT Mortgage REIT index since
inception Strong returns since inception
134%
267%
67%
Aug. ’03
Western’s
comparison
date |
 13
Source: FactSet data as of 4/25/14.
(1)
Effective fed funds rate used instead of target rate.
In contrast to pre-crisis levels, we are currently in a
very low-rate, rising stock market |
 14
Source:
SNL Financial data as of 4/25/14.
Anworth has traded above book value for a
significant amount of its history
–
0.50x
1.00x
1.50x
2.00x
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
ANH price / book value |
 Total return
2014 YTD
1 year
3 years
5 years
Since inception
ANH
33.9%
(2.8%)
8.5%
68.5%
267.4%
HTS
23.7%
(17.8%)
1.2%
62.0%
NA
CYS
20.4%
(17.7%)
14.8%
NA
NA
CMO
9.5%
9.8%
40.8%
116.8%
200.7%
Core peer average
17.9%
(8.6%)
18.9%
89.4%
200.7%
ANH Rank vs. Core peers
1 of 4
2 of 4
3 of 4
2 of 3
1 of 2
NLY
19.0%
(17.0%)
(4.2%)
63.6%
592.7%
AGNC
21.6%
(19.8%)
28.1%
225.5%
NA
ARR
8.8%
(24.1%)
(6.8%)
(7.4%)
NA
WMC
2.2%
(11.0%)
NA
NA
NA
EARN
10.5%
(8.7%)
NA
NA
NA
Other Agency REITs average
12.4%
(16.1%)
5.7%
93.9%
592.7%
ANH Rank vs. Core & Other Agency REITs
1 of 9
2 of 9
4 of 7
3 of 6
2 of 3
NLY
19.0%
(17.0%)
(4.2%)
63.6%
592.7%
CMO
9.5%
9.8%
40.8%
116.8%
200.7%
MFA
15.6%
1.1%
59.5%
178.4%
469.2%
DX
10.6%
(6.8%)
29.0%
116.3%
(64.1%)
Western peer average
13.7%
(3.3%)
31.3%
118.8%
299.6%
ANH rank vs. Western peers
1 of 5
3 of 5
4 of 5
4 of 5
3 of 5
15
Source: SNL Financial and FactSet data as of 4/25/14.
(1)
Total return since ANH IPO on 3/11/98.
(2)
Total return since IPO priced on 5/1/13.
Anworth has delivered returns...
(1)
(2) |
 16
Source:
SNL Financial and Bloomberg News.
…while others have failed
Past mortgage REIT difficulties
IPO Date
Resolution
Agency mortgage REITs
Laser Mortgage Management
Nov-97
Common stock deregistered
Apex Mortgage Capital
Dec-97
Merged with American Home Mortgage
Luminent Mortgage Capital
Dec-03
Filed for bankruptcy
Bimini Capital Management
Sep-04
Acquired by SPAC
Prime mortgage REITs
American Home Mortgage Investment Corp.
Oct-99
Filed for bankruptcy
Thornburg Mortgage
Jun-93
Filed for bankruptcy
HomeBanc Corp.
Jul-04
Filed for bankruptcy
Subprime mortgage REITs
New Century Financial Corp.
Oct-04
Filed for bankruptcy
Fieldstone Investment Corp
Feb-05
Acquired by C-BASS
ECC Capital Corp.
Feb-05
Common stock deregistered
Commercial mortgage REITs
CRIIMI Mae
Apr-94
Filed for bankruptcy
Anthracite Capital
Mar-98
Filed for bankruptcy
Gramercy Capital
Jul-04
Significant credit write downs
JER
Jul-05
Common stock deregistered
CBRE
Mar-06
Common stock deregistered
Diversified mortgage REITs
Deerfield Triarc Capital
Jun-05
Significant credit write downs
Taberna Realty Finance Trust
Apr-06
Acquired by RAIT Investment Trust
Crystal River Capital
Jul-06
Merged with Brookfield Asset Mgmt
Alesco Financial Inc.
Nov-06
Merged with Cohen & Company
IPO investors have lost 99% of their principal investment in every REIT named
below |
 Wall
Street analysts have positive views on Anworth
17
Source:
Wall Street Equity Research.
“
Book
value
per
share
was
$6.10,
up
2.0%
from
4Q14
and
aided
by
the
repurchase
of
3.8%
of
outstanding
shares.
We
note
that,
in
2Q14,
ANH
has
already
repurchased
an
additional
3.6%
of
outstanding
shares.
”
Maxim Group, 5/1/14
“
During
1Q14,
Anworth
repurchased
5.6
million
shares
for
$28.2
million.
This
was
higher
than
our
4.0
million
forecast
for
$19.8
million.
Subsequent
to
the
end
of
the
quarter
and
through
April
28,
Anworth
has
purchased
another
4.8
million
shares
at
a
weighted
average
price
of
$5.24,
bringing
buybacks
to
$25.1
million.
”
“
As
we
have
written
about
in
the
past,
we
think
actual
mortgage
REIT
liquidation
is
not
as
easily
achievable
as
it
sounds
on
the
surface
so
we
don’t
think
this
will
be
a
viable
option
when
the
stock
trades
at
90%
of
book
value.
”
FBR & Co., 4/30/14
“
1Q14
results
beat
our
estimate,
primarily
the
result
of
a
lower
premium
amortization
on
slower
prepays.
We
are
encouraged
by
our
improved
portfolio
spread
outlook,
share
buybacks,
along
with
the
company's
strategic
diversification
efforts.
”
RBC Capital Markets, 4/30/14
“
Given
the
better
than
expected
1Q13
results
and
a
decrease
to
our
blended
cost
of
funds
as
we
expect
higher
cost
swaps
to
roll
off
(roughly
$410m
with
a
WA
pay
rate
of
2.00%
maturing
in
5
months),
we
are
increasing
our
2014
core
EPS
estimate
by
4c
to
36c.
We
are
increasing
our
net
interest
spread
assumption
by
5bps
to
65bps
while
our
year-end
leverage
estimate
remains
unchanged
at
8.1x.
”
Deutsche Bank, 4/30/14 |
 Anworth’s governance
18 |
 Anworth’s management has effectively
governed to maximize shareholder value
19
Strong and independent Board
Board members with significant prior Board experience
Proposed new Board member with significant industry expertise
Below average management fees
Established Strategic Review Committee
No 14a-8 Proposals received from stockholders for more than 10 years
Effective
governance
Anworth has increased shareholder value through implementing a share repurchase
program Since 2010, the Company has repurchased ~23 million shares
All repurchases were done on an accretive basis
The share repurchase program allows for the repurchase of an additional ~8 million
shares Aggressive
buyback policy
During 2014, the Board has significantly reduced the trading discount to book
value Anworth has hired Credit Suisse to review strategic
opportunities Liquidation, due to “breakage”
costs, does not improve shareholder NPV, while ending any future
value
Western, as well as nominated directors, have no experience managing public
REITs The current
Board
provides best
value to
shareholders |
 Externally managed mortgage REITs are the
standard
20
Source: SNL Financial and company filings as of 4/25/14.
(1)
Includes AGNC, ANH, ARR, CMO, CYS, EARN, HTS, NLY and WMC.
(2)
Includes AGNC, AMTG, ANH, ARR, CHMI, CIM, CMO, CYS, EARN, HTS, JMI, MFA, MTGE, NLY,
NRZ, OAKS, PMT, RWT, TWO, WMC and ZFC. (3)
Includes ABR, ACRE, ARI, BXMT, CLNY, DX, IVR, MITT, NCT, NRF, RAS, RSO, SFI and
STWD. (1)
(2)
(3) |
 Anworth’s management fees are below
average
21
Agency assets/ Total assets
Management fees
(1)
Anworth Mortgage Asset Corp.
99%
1.20%
Agency Residential
Annaly Capital Management, Inc.
94%
1.05%
American Capital Agency Corp.
85%
1.25%
Hatteras Financial Corp.
92%
1.04%
(2)
ARMOUR Residential REIT, Inc.
93%
1.50%
(3)
CYS Investments, Inc.
98%
Internal
Capstead Mortgage Corp.
96%
Internal
Western Asset Mortgage
92%
1.50%
Ellington Residential Mortgage REIT
86%
1.50%
Average
1.31%
Median
1.38%
Source:
Company filings.
Agency REITs, even those with different strategies, have comparable operating
costs In May 2011, shareholders approved Anworth’s external management
structure Of the voting shareholders, 94% voted in favor of the
externalization (1)
Base fee as a percentage of equity.
(2)
Management fee based on scaled fee equaling 1.50% for equity up to $250 million, plus 1.10% for equity
in excess of $250 million and up to $500 million, plus 0.80% equity in excess of $500 million
plus 0.50% for equity in excess of $750 million. Fee as shown based on 4Q’13 ANH total common equity plus preferred equity.
(3)
Management fee based on scaled fee equaling 1.50% of gross equity up to $1.0 billion plus 0.75% of
gross equity in excess of $1.0 billion. Fee as shown based on 4Q’13 ANH total common equity
plus preferred equity. |
 We
continue to proactively strengthen our Board 22
Mark S. Maron
Strategic Review
Committee
Partner at Acre Corporation, a private equity commercial real estate firm
Founding principal of Birchmont Capital Advisors (now JRK Multifamily), a $1
billion real estate private equity fund focused on multi-family
properties; Mr. Maron remains a General Partner of the fund
Spent 23 years as an investment banker, including 18 years at Credit Suisse,
where
he
began
his
career
in
the
mortgage
department,
ultimately
leading
Credit
Suisse’s Los Angeles office and West Coast financial institutions
practice Served on the Board of Directors of True Religion Brand Jeans until
its sale to a private equity firm in July 2013
Holds a Bachelor of Arts degree from McGill University in Montreal, Canada, and a
Master of Business Administration degree in Finance from the Wharton School
of Business
Established
to
identify
individuals
and
organizations
which
will
participate
in
the
management and execution of the Company’s recently announced diversification
program to invest in other types of mortgage and real estate assets through
its qualified REIT subsidiary and its taxable REIT subsidiary
Completely independent
Nominated one qualified, independent Board member for election in 2014 and
established an independent Strategic Review Committee
|
 23
Source:
Company filings and SNL Financial.
(1)
Calculated as total shares repurchased divided by total shares outstanding as of
1Q’14 plus total shares repurchased since 1Q’10. (2)
Average of peers include CMO, CYS and HTS. 1Q’14 and 2Q’14 data not
available for peers. (3)
Average of other Agency REITs include AGNC, ARR, EARN, NLY and WMC. 1Q’14 and
2Q’14 data not available for peers. (4)
Share repurchase history from April 1 to April 28, 2014 for ANH.
= ANH
= Peers
(2)
= Other Agency REITs
(3)
1Q’10
2Q’10
3Q’10
4Q’10
1Q’11
2Q’11
3Q’11
4Q’11
1Q’12
2Q’12
3Q’12
4Q’12
1Q’13
2Q’13
3Q’13
4Q’13
1Q’14
2Q’14
(4)
Total
–
2.2%
0.3%
0.2%
–
–
–
0.6%
–
–
–
0.5%
–
2.2%
1.0%
2.1%
4.1%
3.5%
16.7%
–
–
–
–
–
–
–
–
–
–
–
1.0%
0.3%
0.3%
1.5%
1.5%
na
na
4.7%
–
–
–
–
–
–
–
–
–
–
–
1.0%
0.1%
0.3%
0.9%
1.9%
na
na
3.9%
ANH
Peers
(2)
Other Agency
REITs
(3)
Anworth
has
bought
back
~17
percent
of
outstanding
shares
versus
~4
percent
by
peers
and
other
Agency
REITs
(1)
Longstanding buyback program with
increased purchases over the last 12 months
%
of
shares
repurchased
(1)
ANH
16.7%
Peers
4.7%
Other
Agency
REITs
3.9%
1Q '10
2Q '10
3Q '10
4Q '10
1Q '11
2Q '11
3Q '11
4Q '11
1Q '12
2Q '12
3Q '12
4Q '12
1Q '13
2Q '13
3Q '13
4Q '13
1Q '14
2Q '14
Share repurchase history
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
(2)
(3) |
 24
Source: SNL and company filings as of 4/25/14.
(1)
Peers include CMO, CYS and HTS.
Discount to book value has narrowed significantly
in 2014
Anworth’s discount to the core peer average has improved from 14% to 3% this
year 0.92x
0.94x
Peers
(1)
ANH
0.60x
0.70x
0.80x
0.90x
1.00x
Jan 2014
Feb 2014
Mar 2014
Apr 2014
Year to date price / book value |
 25
Source: Company filings. Book value as of 3/31/14.
(1)
Market data as of 4/25/14.
Liquidating the company would not improve
shareholder Net Present Value
Liquidation considerations
Estimated liquidation value
Expenses that would be incurred through liquidation
process are significant and would impact value
realization to shareholders
Expenses include termination fee, change of control
payments, asset liquidation costs and others
Timing
Nature of corporate structure would require lengthy
liquidation process, further impacting value
realization
Given timing issues, liquidation provides no meaningful
Net Present Value upside to current market value of
$5.48
(1)
Assets
liquidation
cost
$6.10
$5.65
($0.32)
($0.03)
($0.07)
($0.04)
Book value
Termination
fee
Change of
control
payments
Liquidation analysis
(per share data)
Long-term
and other
commitments
Net value
unadjusted
for timing |
 26
Western Investment’s campaign industry distribution
(1)
Western Investment’s two precedent REIT campaigns
I. Dynex Capital, Inc. (2006)
Filed 13D to report 5.0% position
Source: FactSet and public filings
(1)
Per SharkRepellent. Includes all public campaigns.
(2)
End
price
of
$8.60
per
the
October
6,
2006
merger
closing
date.
Cost
basis
calculated
as
weighted
average
of
Western
Investment’s
purchases
and sales, per its December 5, 2005 13D/A. Return includes dividends, including
special dividend of $0.50 paid October 16, 2006. Western’s focus is almost
exclusively closed-end funds Suggests limited understanding of mortgage
REITs Total = 60 situations
(2 campaigns)
(1 campaign)
(2 campaigns)
(55 campaigns)
Advisory
and
lending
(3.3%)
REIT (3.3%)
Healthcare (1.7%)
Investment Trusts /
Mutual Funds (91.7%)
II. Sunset Financial Resources, Inc. (2005)
Launched contest to replace entire six-member Board
Failed to gain any seats on the Board
Failed to oppose the merger with Alesco Financial Trust
at $8.60 per share
(2)
Western’s estimated cost basis of $10.24 implies a net
loss on the investment
Did not amend Item 4 to announce specific control
plan or proposal
Announced support of management |
 Value
creation during Board tenure 27
Source: FactSet and company filings as of 4/25/14.
(1)
Return
on
stock
(including
reinvested
dividends)
against
the
S&P
500
Total
Return
index
during
Board
tenure.
Western Investment nominees
Name
Companies
Joined Board
Exited Board
Return
Alpha
(1)
Paul R. DeRosa
Intervest Bancshares Corp
Feb-03
N/A
-26.9%
-209.0%
AMBAC Financial Group, Inc.
Jul-08
May-13
-100.0%
-139.7%
Filed for
bankruptcy
on 8-Nov-10
Gregory R. Dube
New England Realty Associates LP
The Gabelli Global Multimedia Trust Inc.
Oct-07
Jun-10
N/A
May-13
81.3%
22.1%
Kenneth B. Dunn
NextEra Energy
BlackRock, Inc.
*No public board experience*
*No public board experience*
Ronald Mass
Scott F. Richard
Jul-10
N/A
111.6%
27.2%
138.6%
159.3%
May-11
Aug-05
130.7%
90.3% |
 Conclusion
Anworth
has
and
continues
to
take
aggressive
actions
to
increase
shareholder
value
and
enhance corporate governance
Anworth has delivered investors a total return of 267% since inception compared to
67% for the FTSE NAREIT Mortgage REITs Index
Anworth’s hedged portfolio has provided above average long term risk adjusted
returns Through Anworth’s aggressive buyback program, which dates back
to 2005, ~17% of shares have been repurchased since 2010
Discount to book has narrowed to 0.92x
Anworth
continues
to
strengthen
its
Board
with
the
nomination
of
a
new
director
The Company has hired Credit Suisse to better position the Company’s strategy
in changing business cycles
Western's perspectives are largely without merit and not worthy of replacing the
Board 28 |