The year has been terrible for mortgage REITs that provide real estate financing through the purchase of mortgages and mortgage-backed securities (“MBS”). Volatile markets triggered by global growth worries and a stronger dollar weighed on the results of these REITs.

Most importantly, the fear of an impending rate hike by the Fed is hurting 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 their mortgage assets and their funding costs. Therefore, a higher interest rate environment would certainly raise their borrowing cost, narrowing down their earnings and dividend payments (read: Worried About Looming Rate Hike? Try this Ex-US REIT ETF).
 
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 third-quarter 2015 net spread and dollar roll income of 51 cents per share (excluding estimated “catch-up” premium amortization benefit), that fell short of the Zacks Consensus Estimate as well as the year-ago figure of 60 cents. Moreover, the company’s net interest income (“NII”) of $218 million missed the Zacks Consensus Estimate of $273 million and came in lower than $269 million in the prior-year quarter.
 
As of September 30, 2015, the company’s net book value per share was $23.00, down from $24.00 as of June 30, 2015. The decline in book value was attributable to wider spreads between agency MBS and benchmark interest rates. Further, American Capital Agency declared monthly dividends of 60 cents per share for the quarter, down from 62 cents paid in the previous quarter and 65 cents in the same quarter prior year. Shares of the company fell 5.4% (as of November 5, 2015) since the third-quarter earnings release post closing bell on October 26.
 
Another key player, Annaly Capital Management, Inc. (NLY – Analyst Report) saw third-quarter 2015 normalized core earnings per share of 30 cents, down from 33 cents earned a year ago and lower than the Zacks Consensus Estimate of 31 cents. NNI totaled $340.5 million, down 34.2% year over year but surpassed the Zacks Consensus Estimate of $317 million.
 
Annaly’s book value per share came in at $11.99 as of September 30, compared with $12.87 as of September 30, 2014. At the end of quarter, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 13.7%, down 130 basis points (bps) year over year. Shares of the company fell 2.4% till the closing session ended yesterday (November 5) (read: A Comprehensive Guide to REIT ETFs).
 
ETFs to Watch
 
The dull third-quarter results of these mREITs are expected to worsen the performance of REIT ETFs with significant exposure to them. Below, we have highlighted two of these ETFs that are likely to remain in focus in the upcoming days (see all Real Estate ETFs here).

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