What: Shares of Western Asset Mortgage Capital Corp. (NYSE:WMC) were down by more than 10% as of 2:50 p.m. ET after a disappointing fourth-quarter earnings report. So what: The mortgage real estate investment trust revealed a net loss of $0.49 per share for the fourth quarter, driven by marks to its investment book. Notably, the company earned $0.39 in "core earnings plus drop income" per share, which excludes gains and losses on the value of its mortgage-backed securities. Both measures of earnings failed to cover its $0.58 quarterly dividend it paid during the fourth quarter. The company reported that book value fell to $12.21 per share, down from $13.26 per share in the third quarter. Now what: Investors are pricing the company for consistent underperformance and perhaps a dividend cut going forward. Western Asset Mortgage Capital noted in a presentation that since its 2012 IPO it has delivered a 24.5% economic return on book value. Unfortunately, due to its shrinking premium to book value since going public, investors have seen annualized returns of little more than 2% annually since its IPO.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Western Asset gains after reporting rough quarter; After more than 10% of book value vanished in Q4, Western Asset Mortgage (WMC +0.8%) goes on offense, entering an ATM share offering program with JMP Securities for up to $100M of common stock.Proceeds would be used to "opportunistically purchase" targeted mortgage assets.Previously: Book value down big at Western Asset Mortgage in Q4 (March 6) After Hours Gainers / Losers Top gainers, as of 5.25 p.m.: ASNA +5.3%. Top losers, as of 5.25p.m.: PCRX -5.2%. Book value down big at Western Asset Mortgage in Q4 Q4 core earnings plus drop income of $22.1M or $0.52 per share vs. $14.8M and $0.35 in Q3. Dividend is $0.31.Dec. 31 book value per share of $10.27 down from $11.48 three months earlier.
Today's close of $9.97 is a slim 2.9% discount to book value.Economic return for the quarter of negative 7.8%, or negative 31.4% annualized.Management notes an improvement in book value so far this year as rates have stabilized.Conference call tomorrow at 11 ET.Previously: Western Asset Mortgage Capital beats by $0.20, beats on revenue (March 6)WMC flat after hours Western Asset Mortgage Capital beats by $0.20, beats on revenue Western Asset Mortgage Capital (NYSE:WMC): Q4 EPS of $0.52 beats by $0.20.Revenue of $26.73M (-2.4% Y/Y) beats by $4.71M. Notable earnings after Monday’s close ADUS, AKBA, ALOG, ASNA, ATSG, AVD, BDE, CASY, DAVE, DCO, KFY, KTWO, MEET, MNTX, PLOW, PRTS, THO, WMC Mortgage REITs move higher after AGNC results A big hit to sector book values in Q4 appears more than priced in as AGNC Investment (NASDAQ:AGNC) moves higher by 1.5% in early action after last night reporting a 7.6% decline in book value for 2016's last three months, and a negative 5.2% economic return (-20.8% annualized).
The flipside of widening MBS spreads (as noted by AGNC's Gary Kain) is that it makes for a good buying opportunity, and AGNC plans to build firepower with a $750M ATM offering.The iShares FTSE Nareit mREIT ETF (REM +0.6%)Annaly (NLY +0.5%), Armour (ARR +0.7%), Two Harbors (TWO +0.2%), CYS (CYS +1.3%), Invesco (IVR +0.8%), MFA (MFA +0.4%), Western Asset (WMC +0.5%), Anworth (ANH +0.4%), Dynex (DX +0.9%), AG Mortgage (MITT +0.5%)ETFs: MORT, MORL Western Asset Mortgage, AG Mortgage lose sell-side friend Outliers to the downside in the mortgage REIT sector this morning are Western Asset Mortgage (WMC -2.2%) and AG Mortgage (MITT -1.9%) after Wunderlich's Merrill Ross downgrades each to Hold from Buy.Western Asset is lower by 3.5% Y/Y and currently sells for a 10% discount to Sept. 30 book value.AG is up 31% Y/Y and currently sells for a 6% discount to book. It's up about 10% since Ross upgraded to a Buy the day before the election. Western Asset Mortgage Capital declares $0.31 dividend
Western Asset Mortgage Capital (NYSE:WMC) declares $0.31/share quarterly dividend, in line with previous.Forward yield 11.86%Payable Jan. 26; for shareholders of record Jan. 3; Mortgage REITs recoup some losses The iShares FTSE Nareit Mortgage REIT ETF (REM +2.1%) is nicely ahead this session, but sill down more than 3% on the week.This week, of course, included the expected Fed rate hike, but the unexpectedly hawkish guidance for 2017. The 10-year Treasury yield has surged all the way to 2.60%, and the two-year yield - at 0.6% just five months ago - flew all the way to 1.26%.Also hurting this week was a big decline in book value in November at AGNC Investment (AGNC +1.7%) - a bellwether of sorts for agency mREITs.Other movers today: Annaly Capital (NLY +2.8%), Armour (ARR +1.3%), Two Harbors (TWO +2.1%), CYS Investments (CYS +3.7%), Invesco (IVR +3.6%), New York Mortgage (NYMT +3.4%), MFA Financial (MFA +2.1%), Western Asset (WMC +3.2%), Anworth (ANH +2.9%), Dynex (DX +2.6%).
ETFs: MORL, MORTPreviously: Late-week bounce for REITs (Dec. 16) Rough session for mREITs as bull turns cautious KBW's Bose George now sees five Fed rate hikes by the end of 2018 vs. his previous estimate of just one. He lowers his sector (REM -1.3%) estimates by 4% for 2017 and 2018.Downgraded to Market Perform from Outperform are CYS Investments (CYS -2.5%), and Invesco Mortgage (IVR -3.9%).Annaly (NLY -1.2%), AGNC Investment (AGNC -1.1%), MTGE Investment (MTGE -2.6%), New York Mortgage (NYMT -2.2%), Capstead (CMO -2.5%), Western Asset (WMC -2.6%), AG Mortgage (MITT -3.3%)ETFs: MORT, MORL Big session for mortgage REITs Though lagging the S&P 500 by about 100 basis points since the election (and the banks by a mile), the mortgage REITs are nevertheless higher since the election despite the sharp rise in interest rates.Mortgage REITs are carry players, of course, and can expect to see boosts to income if long rates rise faster than short rates (though book value could take a hit).
The iShares FTSE Nareit Mortgage REIT ETF (REM +1.2%) today is outperforming the S&P 500's 0.35% advance. The 10-year Treasury yield is down five basis points to 2.30%.Annaly (NLY +1%), AGNC Investment (AGNC +1.7%), Two Harbors (TWO +2.9%), Chimera (CIM +2.1%), CYS Investments (CYS +2%), Invesco (IVR +1.5%), Capstead (CMO +1.5%), Western Asset (WMC +1.5%), AG Mortgage (MITT +2.7%)ETFs: MORT, MORL Mortgage REIT earnings come in strong With more than half the sector having reported their Q3s, the general themes are rising earnings (covering payouts) and gains in book value leading to sizable returns. Among those who reported last night or this morning - Armour Residential (ARR +1.9%), American Capital Mortgage (MTGE +2.1%), MFA Financial (MFA +1.9%), Western Asset (WMC +1.8%), Anworth (ANH +2%).The iShares FTSE Nareit mREIT ETF (REM +1%)Other ETFs: MORL, MORT Western Asset Mortgage earnings and book value rise in Q3 Q3 core earnings plus drop income of $14.8M or $0.35 per share vs. $12.7M and $0.30 earned in Q2.