New Residential Investment Corp. NRZ is scheduled to report first-quarter 2020 results on May 5, before market open. The company’s first-quarter earnings per share (EPS) and net interest income (NII) are likely to reflect year-over-year declines.
In the last reported quarter, this New York-based mortgage real estate investment trust (mREIT), primarily focused on residential real estate investments, posted core earnings of 61 cents per share, missing the Zacks Consensus Estimate by 19.6%.
In the preceding four quarters, the company outpaced the Zacks Consensus Estimate on one occasion and missed on the other three, the positive surprise being 3.49%, on average. The graph below depicts this surprise history:
New Residential Investment Corp. Price and EPS Surprise
New Residential Investment Corp. price-eps-surprise | New Residential Investment Corp. Quote
Let’s see how things have shaped up prior to this announcement.
Factors at Play
The liquidity-driven market mayhem, triggered by the ongoing coronavirus crisis, has resulted in significant dislocations in the mortgage and credit markets. Specifically, as the economic impacts of the pandemic became clear, cash preservations and concerns over the failure of meeting mortgage payments resulted in a risk-off approach by investors, who started indiscriminately shedding risky assets. With investors fleeing from residential and commercial debt, the mortgage market also felt the brunt of the selloff. This resulted in pricing pressure on mortgage backed securities (MBS). As prices of the securities declined, mREITs — which hold the securities — experienced a fall in book values. Impacts of the developments are expected to get reflected in the company’s quarterly results.
Additionally, with uncertainties in the credit markets, credit-sensitive assets and non-Agency MBS (not backed by Fannie Mae and Freddie Mac) were severely impacted, driving margin calls from repo lenders. To meet the margin calls and control leverage levels, mREITs are expected to have resorted to asset sales in the back half of March (even in unfavorable market conditions) as well as dividend cuts.
New Residential witnessed high level of margin calls, owing to declining value of its non-agency mortgage-backed securities, loans and mortgage servicing rights that are used as collateral against its credit facilities. Hence, to meet the margin calls, the company is expected to have sold a significant portion of its liquid agency and non-agency RMBS assets at unattractive pricing.This is anticipated to have triggered high disposal losses, thereby impacting the company’s performance during the quarter under review.
Also, in a bid to preserve liquidity amid the coronavirus outbreak, on Mar 31, New Residential slashed its first-quarter dividend by around 90% to 5 cents.
Moreover, the company sees a decline in its first-quarter book value. New Residential estimates book value per share of $16.21 as of Mar 27, 2020, indicating a sequential decline of 25-30%.
Furthermore, high credit risks related to the company’s non-agency residential mortgage-backed securities, residential mortgage loans and consumer loans are expected to have affected its first-quarter earnings.
Also, the credit markets witnessed volatility during first-quarter 2020. This resulted in tighter spreads and is expected to have adversely impacted the company’s non-agency portfolio.
Amid these, the Zacks Consensus Estimate for the company’s first-quarter NII of $215.5 million suggests a year-over-year decline of 4.7%.
Moreover, the Zacks Consensus Estimate of earnings has been revised 54% downward to 24 cents over the past month, reflecting analysts’ bearish sentiments. In addition, it indicates a decline of 54.7% from the prior-year quarter’s reported figure.
The company currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Upcoming REIT Releases
Omega Healthcare Investors, Inc. OHI is slated to report first-quarter results on May 4.
CoreSite Realty Corporation COR is slated to release first-quarter earnings on Apr 30.
Americold Realty Trust COLD is expected to release earnings on May 7.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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