Shares of Annaly Capital Management (NYSE:NLY) are lower in after-hours trading after the company reported third-quarter results that were lower than analyst estimates. Core earnings at the mortgage REIT came in at $0.28 per share for the three months ended Sept. 30, compared with a consensus forecast of $0.33 per share.

According to Chairman and CEO Wellington Denahan, "Given the ongoing monetary policy impacts on the mortgage market and the uncertainty surrounding the future path of policy, we remain measured in our investment strategy."

One of the bright spots in the report was the fact that Annaly's interest-rate spread widened, albeit by only three basis points. The overall downward trend in long-term interest rates has weighed heavily on the bottom lines at many of the nation's largest mortgage REITs, including ARMOUR Residential and American Capital Agency. Over the past two years alone, both of these companies, as well as Annaly, have watched their spreads compress by more than half.

The primary factor fueling this expansion was a higher annualized yield on earning assets, helped along principally by lower prepayment speeds on Annaly's portfolio of agency mortgage-backed securities. For the quarter, the constant prepayment rate was 13%, compared with 20% in the year-ago period. Meanwhile, higher hedging costs pushed up its cost of funds by a nearly identical margin.

On a valuation basis, its book value continued to descend, coming in at $12.70 per share. This is nearly 24% less than the $16.60-per-share book value that it reported in the third quarter of 2012.

Finally, and most notably for investors that consider Annaly immune from credit risk, was the company's announcement that its commercial real estate portfolio continues to grow. "Our diversification into commercial assets is building momentum," said Denahan, "with commercial investments up approximately 30% and now representing 11% of our capital."

Many analysts have lauded Annaly's move to diversify away from residential mortgage-backed securities given the expected headwinds from future interest-rate trends. However, I'd urge shareholders to consider Annaly's comparatively meager experience in this realm as well as the uninsured nature of the assets at issue.