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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¨ | Soliciting Material Pursuant to § 240.14a-12 | |||
ANWORTH MORTGAGE ASSET CORPORATION | ||||
(Name of Registrant as Specified in Its Charter) | ||||
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Anworth Asset Management Corporation (Anworth) furnished on May 6, 2014 the supplemental investor presentation filed herewith as definitive additional proxy materials, to each of Institutional Shareholder Services Inc., Glass, Lewis & Co. and Egan Jones. The supplemental 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 Anworths 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 Anworths current expectations and are subject to the limitations and qualifications set forth in the investor presentation as well as in Anworths 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.
Supplemental Investor Presentation
May 6, 2014
Key messages Correcting Western's misleading
statements
Anworths strong YTD performance is not primarily attributable to Western
Western's peer group is self-serving, incorrect and designed to create confusion by conflating Anworth with a non-Agency peer set
Western's ever-changing, haphazard "plan" for Anworth is all over the map, flawed and unlikely to add value and upside for shareholders
Westerns directors have no public mortgage REIT experience, nor does its chosen manager
Western's statements about our stock buyback program, manager compensation and office lease are misleading
1
Anworths 2014 performance is not "primarily
attributable to Western Investments activity
Anworths stock has returned 34% YTD, with a 24% performance prior to Westerns activity(1)
In 2014, Anworth has repurchased 10.4 million shares, with ~5 million purchased in April alone
- Western currently only owns ~5 million shares(2)
34% ~4%
~6%
~3%
21%
YTD total return Price performance Dividends Peer price performance ANH
stock repurchase
prior to Western filings $0.14 per share post Western filing and other market
factors
(1) Westerns primary filing was dated 4/4/14.
(2) As of 4/7/14.
2
Western is using a misleading peer set
In evaluating Anworth's performance over the last decade, Western wants to pretend the mortgage crisis never happened
In evaluating Anworth's performance over the last decade, Western apparently has forgotten the mortgage crisis, in which 19+ mortgage REITs ceased operations
Anworth has substantially outperformed the NAREIT Mortgage REIT index over the last 10 years
-
23% total return for Anworth vs. -13% for the NAREIT Mortgage REIT index(1) over this period
- The NAREIT Mortgage REIT index is comprised primarily of REITs that
invest in high-quality residential mortgage assets, as was also the case in 2004
Western dismisses the NAREIT Mortgage REIT index as too diverse in its
composition, yet Westerns cherry-picked comparables consist of only four companies: one of which has acquired a significant portfolio of deeply discounted, non Agency MBS and another which was primarily a securitizer of mobile home and
commercial loans in 2004; it's quite a stretch to describe these peers as investing in "high-quality" assets over the last 10 years
In fact, there were a number of
Mortgage REITs that invested in high-quality residential mortgage assets in 2004
- Thornburg Mortgage (TMA), one of the largest of these peers in 2004, invested in
high-quality adjustable-rate mortgages through both securitizations and Agency MBS, as did Anworth; TMA did not survive the mortgage crisis
When taking into
account all of the peers that Anworth competed with 10 years ago, Anworths performance is at or above median for the past decade
(1) Bloomberg data from
4/25/04 - 4/25/14. 3
Western is using a misleading peer set
In evaluating Anworth's performance over the last decade, Western wants to pretend the mortgage crisis never happened
In evaluating Anworth's performance over the last decade, Western apparently has forgotten the mortgage crisis, in which 19+ mortgage REITs ceased operations
Anworth has substantially outperformed the NAREIT Mortgage REIT index over the last 10 years
-
23% total return for Anworth vs. -13% for the NAREIT Mortgage REIT index(1) over this period
- The NAREIT Mortgage REIT index is comprised primarily of REITs that
invest in high-quality residential mortgage assets, as was also the case in 2004
Western dismisses the NAREIT Mortgage REIT index as too diverse in its
composition, yet Westerns cherry-picked comparables consist of only four companies: one of which has acquired a significant portfolio of deeply discounted, non Agency MBS and another which was primarily a securitizer of mobile home and
commercial loans in 2004; it's quite a stretch to describe these peers as investing in "high-quality" assets over the last 10 years
In fact, there were a number of
Mortgage REITs that invested in high-quality residential mortgage assets in 2004
- Thornburg Mortgage (TMA), one of the largest of these peers in 2004, invested in
high-quality adjustable-rate mortgages through both securitizations and Agency MBS, as did Anworth; TMA did not survive the mortgage crisis
When taking into
account all of the peers that Anworth competed with 10 years ago, Anworths performance is at or above median for the past decade
(1) Bloomberg data from
4/25/04 - 4/25/14. 3
Anworth 2004 peer analysis
Public high-quality
residential mortgage REITS in 2004
American Home Mortgage Annaly Mortgage Mgmt Bimini Mortgage Capstead Mortgage
Hanover Capital Mortgage HomeBanc Corp Luminent Mortgage Capital
MFA Mortgage MortgageIT
Holdings New York Mortgage Trust
Redwood Trust
Sunset Financial Resources
Thornburg Mortgage
Adjustable rate REITs
Agency REITs
American Home Mortgage Annaly Mortgage Mgmt Bimini Mortgage Capstead Mortgage Hanover Capital Mortgage Homebanc Corp
Luminent Mortgage Capital MortgageIT Holdings New York Mortgage Trust Redwood Trust Thornburg Mortgage
Annaly Mortgage Mgmt Bimini Mortgage Capstead Mortgage Hanover Capital Mortgage
Luminent
Mortgage Capital MFA Mortgage New York Mortgage Trust Sunset Financial Resources
Adjustable rate Agency REITS
Annaly Mortgage Mgmt Bimini Mortgage Capstead Mortgage
Hanover Capital Mortgage Luminent
Mortgage Capital New York Mortgage Trust
4
Anworth has outperformed peers over the past 10
years
Public high-quality residential mortgage REITS in 2004
10 year total
return 10 year total return
ANH 23%
American Home Mortgage (100%) MFA
Mortgage 164%
Annaly Mortgage Mgmt 98% MortgageIT Holdings Acquired
Bimini
Mortgage (98%) New York Mortgage Trust (73%)
Capstead Mortgage 147% Redwood Trust 19%
Hanover Capital Mortgage Merged Sunset Financial Resources Merged
HomeBanc Corp
(100%) Thornburg Mortgage (100%)
Luminent Mortgage Capital (100%)
ANH
rank vs. peers 5 of 14
Adjustable rate REITs Agency REITs
10 year total
return 10 year total return
ANH 23% ANH 23%
American Home Mortgage
(100%) Annaly Mortgage Mgmt 98%
Annaly Mortgage Mgmt 98% Bimini Mortgage (98%)
Bimini Mortgage (98%) Capstead Mortgage 147%
Capstead Mortgage 147% Hanover Capital
Mortgage Merged
Hanover Capital Mortgage Merged Luminent Mortgage Capital (100%)
HomeBanc Corp (100%) MFA Mortgage 164%
Luminent Mortgage Capital (100%) New York
Mortgage Trust (73%)
MortgageIT Holdings Acquired Sunset Financial Resources Merged
New York Mortgage Trust (73%) ANH rank vs. peers 4 of 9
Redwood Trust 19%
Thornburg Mortgage (100%)
ANH rank vs. peers 4 of 12
Adjustable rate Agency REITS
10 year total return 10 year total return
ANH 23%
Annaly Mortgage Mgmt 98% Hanover Capital Mortgage Merged
Bimini Mortgage (98%) Luminent Mortgage Capital (98%)
Capstead Mortgage 147% New York
Mortgage Trust (73%)
ANH rank vs. peers 3 of 7
Source: Bloomberg and company
filings, from 4/25/04 - 4/25/14.
Note: ANH rank adjusted for abbreviated periods, due to IPOs after 4/25/04 and/or transformative corporate actions before 4/25/14.
ANH outperformed in all special cases, except compared to MortgageIT. 5
Western's "plan" for Anworth is all over the map and
flawed
Despite Westerns continuously changing plan for Anworth, they havent proposed any ideas that are likely to add value above the
current stock price to shareholders
When Western announced its intent to nominate its own directors, it had no plan for shareholders other than to liquidate their
investment
- Western never attempted to engage the company or Board with any long-term value-creating ideas before declaring their intent to seek control of the
board with their slate of nominees
- Westerns lack of a plan is perhaps not surprising given they had scarcely been Anworths shareholders for 90 days
at that time Is Western simply making it up week-to-week as it goes along? Is this because none of Western's nominees have any experience whatsoever as directors, officers or managers of a publicly traded REIT?
Western's Preliminary and Definitive Proxy Statements April 4, 2014
best
thing that can be done for stockholders is to simply liquidate the REIT
only way to provide fair value at this point is to liquidate the
REIT.
April 25, 2014
[our] nominees would consider
liquidating Anworth
Western's investor presentation, May 2, 2014
In the unlikely event there is a liquidation
Maximizing
long-term value for stockholders preferably by engaging a new manager
Open to continuing Anworth's existing relationship with Credit Suisse
Immediate priority is to evaluate strategic alternatives
The only concrete part of Westerns current plan is to aggressively buy back stock and
hire an investment bank
- Your current directors have already been repurchasing shares significantly since the 3rd quarter of 2013, long before Westerns
involvement as a shareholder; this plan is no reason to change your Board
- Westerns lack of a price consideration for their buybacks questions
whom this plan is intended to benefit: long-term shareholders or those looking for short-term liquidity to sell their holdings?
- The current Board engaged Credit
Suisse to identify specific transactions to execute our diversification strategy and to make recommendations regarding potential capital markets transactions
6
Western's "plan" for Anworth is all over the map and
flawed (contd)
Western proposes their own directors immediately terminate your current manager and hire an interim manager who has already failed in their
attempt to start a Mortgage REIT
In its "plan", Western excludes the cost of terminating your current REIT manager, which Anworth would have to pay
Westerns chosen manager, Fisher Francis Trees & Watts Inc. (FFTW), failed in their attempt to IPO Galiot in 2009; during this period when investors rejected
FFTWs plan, Cypress Sharpridge was able to go public (June 2009), while Anworth raised additional capital from investors through a successful follow-on offering (February 2009)
- Galiot filed an S-11 on March 12, 2008 and withdrew its filing on July 7, 2009
-
Galiot disclosed in its S-11 an annual management fee structure that was higher than what Anworth pays its current REIT manager(1)
- FFTW stated in their filing
that
our Manager has no experience operating a REIT (1)
Other than taking a leap of faith, Western offers no basis for implying that hiring FFTW
as a replacement REIT manager would do anything to address the trading discount to book value
(1) Galiot Capital Corporations S-11 (amendment 4), filed on
2/6/09. 7
Western's "plan" for Anworth is all over the map and
flawed (contd)
According to Westerns plan, only after their directors are elected will they attempt to figure out exactly what they might do to add
long-term value to shareholders
- None of Westerns nominees have any experience as directors (or even managers) of a mortgage REIT
- Only one of Westerns nominees has any experience as a director of any sort of public investment manager; of note, the mortgage REIT managed by this company became insolvent
while he was a director
Absent any other ideas, Westerns fallback plan continues to be liquidation of your company
- Based on recent filings, Western continues to significantly underestimate the time and cost involved in liquidating your company
- Independent analysts agree:
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 dont think this will be a viable option when the stock trades at 90% of book value. -FBR & Co., 4/30/14
- Given the legal and administrative hurdles, it could be years before cumulative shareholder distributions even equal todays share price, let alone any uncertain additional
value to shareholders
8
Correcting Western's additional misleading
statements
Long history of Western states, Until threatened with a proxy contest, failed to aggressively repurchase shares. (1) share
The fact is Anworth has been repurchasing stock since 2005, and has been aggressively repurchasing repurchases shares well before Westerns filing
Management Western states, Internal management is widely considered to be the preferred structure for stockholders. (1) agreement and compensation
94% of the shareholders that voted approved the externalization of the manager
-
Westerns focus on the percentage of total shareholders, including those who did not vote, is highly misleading Anworth has averaged almost 90% approval on SOP votes, and the company has not received any criticism on the amount of compensation
from ISS, Glass Lewis or any investors in the past
Related party Western states, In February 2012, Anworth signed a new sublease for
a significant
amount of space for transactions an externally managed REIT, at a cost of approximately $500,000 per year, from a company owned by a trust controlled by Lloyd McAdams
and Heather Baines, Anworths Executive Vice President. The same person
serves as the compliance officer of Anworth and the sublessor. (1)
Pacific Income Advisers, Inc. (PIA) rents office space for its business which is unrelated
to Anworth Key Anworth employees work for PIA
Anworths audit committee and independent directors determined that sub-leasing office space at cost from PIA
would be more operationally efficient for Anworth portfolio managers and would not require Anworth to hire additional office administration and IT personnel at a different location
(1) Western Investment LLCs presentation, filed on 5/2/14. 9