Dull Mortgage REIT Earnings: ETFs In Focus

The year has been marked by ups and downs for mortgage REITs that provide real estate financing through the purchase of mortgages and mortgage-backed securities (MBS). Volatile markets have been triggered by global growth worries and seesawing oil prices.

During the first half of the second quarter, chances of a rate hike kept the mREIT industry on tenterhooks. However, with the dismal jobs report in early June, followed by disappointing GDP data and weaker-than-expected manufacturing data, chances of a hike diminished substantially.

A low interest rate environment is expected to benefit the performance of mortgage REITs. These REITs finance their investments with equity and debt capital and generate profits through the spread between interest income on mortgage assets and funding costs. Lower interest rates would certainly aid their borrowing cost, pushing earnings and dividends higher. Meanwhile, these companies are buying back shares and diversifying their businesses to beat market woes.

Below we have highlighted the earnings of some of the major players in the mortgage REIT sector.

Earnings in Detail

American Capital Agency Corp. (AGNC - Analyst Report) saw second-quarter 2016 net spread and dollar roll income of 56 cents per share (excluding the estimated “catch-up” premium amortization benefit),in which was ahead of the Zacks Consensus Estimate of 51 cents. The reported figure also came in higher than 52 cents in the prior-year quarter. However, the company’s net interest income (“NII”) of $217 million missed the Zacks Consensus Estimate of $232 million but was higher than $196 million in the prior-year quarter.

As of June 30, 2016, the company’s net book value per share was $22.22, up from $22.09 as of March 31, 2016.

Another key player, Annaly Capital Management, Inc. (NLY - Analyst Report) saw second-quarter 2016 normalized core earnings per share of 29 cents, down from 41 cents earned a year ago butin line with the Zacks Consensus Estimate. NNI totaled $294 million, down 42.5% year over year but a head of the Zacks Consensus Estimate of $211 million.

Annaly’s book value per share came in at $11.50 as of June 30, 2016, compared with $11.61 as of March 31, 2016. At the end of the quarter, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 13.2%, down from 14.6% in the prior-year quarter.

ETFs to Watch

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