Real Estate: Ellington Residential Mortgage Reports Quarterly Earnings
Ellington Residential Mortgage REIT (NYSE: EARN) reported financial results for the quarter ended December 31, 2019.
Ellington had an impressive quarter. Net income registered at $9.7 million, or $0.78 per share and Core Earnings hit $2.8 million, or $0.23 per share. Ellington had previously announced a dividend payment last month of $0.28. The current annualized dividend yield for Ellington Residential is 10.2% at current prices. Book value grew by 5% year over year.
Breaking Down Ellington Residential Mortgage REIT Earnings
Laurence Penn, Chief Executive Officer and President for EARN, issued a statement on earnings.
“In the fourth quarter, net income significantly exceeded our dividend and we were able to grow book value considerably,” said Penn. “Ellington Residential generated $0.78 per share of earnings and an economic return of 6.2%, or more than 27% annualized, as book value increased nearly 4% quarter over quarter. During the quarter, actual and implied volatility was low, specified pools performed well, and yield spreads tightened—mostly in December—as prepayments moderated. All of these factors contributed to strong performance for Agency RMBS, despite higher medium- and long-term interest rates. At the same time, the rise in medium- and long-term interest rates generated net gains on our interest rate hedges.”
Ellington Residential manages a portfolio of $1.402 billion of Residential Mortgage-backed securities as of December 31, 2019, as compared to $1.395 billion as of September 30, 2019. During the fourth quarter, the company generated net realized and unrealized gains on its Agency RMBS portfolio. Actual and implied volatility was low, specified pools performed well, and Agency RMBS yield spreads tightened as prepayment rates declined in November and December.
During the quarter the company continued to hedge interest rate risk, primarily through the use of interest rate swaps, short positions in TBAs, U.S. Treasury securities, and futures. The quarter-over-quarter increase in medium- and long-term interest rates generated net realized and unrealized gains on the Company’s interest rate hedges.
Looking forward to 2020, Penn suggested that interest rates will remain low. He also said that prepayment rates are again on the rise.
“We see a market environment that we believe plays to our strengths, where pool selection, hedging choices, and risk management will continue to drive performance,” he said.
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