Invesco Mortgage Capital reports net loss of $1.6 billion for Q1 2020

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Invesco Mortgage Capital reports net loss of $1.6 billion for Q1 2020

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Invesco Mortgage Capital Inc. (NYSE: IVR) on 22nd June 2020, announced the result for the first quarter of 2020. The period ended on 31st March 2020.

Invesco Mortgage Capital Inc. is a real estate investment trust (REIT) that primarily focuses on investing in, financing and managing residential and commercial mortgage-backed securities and mortgage loans. Invesco Mortgage Capital Inc. is externally managed and advised by Invesco Advisers, Inc., a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd., a leading independent global investment management firm.

FIRST QUARTER 2020 RESULTS

  1. The company reported a net loss of $1.6 billion for Q2 2020 compared to a net income of $117 million for the fourth quarter of 2019.
  2. The net loss attributable to common stockholders for Q1 2020 was $1.6 billion compared to net income attributable to common shareholders of $106.9 million for Q4 2019.
  3. Invesco reported a loss of $755.5 million on net investments for Q2 2020 lower than the previous year’s net gain on investment of $268 million.
  4. Net loss on derivative instruments increased from loss of $201 million in the prior year to loss of $911 million in Q1 2020.
  5. Total expenses increased by 19% from approx $11 million in Q1 2019 to approx $14 in Q1 2020.
  6. The primary reason for the increase in expenses is due to “fees paid for third-party legal and advisory services in connection with navigating market disruption associated with the COVID-19 pandemic totalling $1.1 million” as per the report.
  7. The net interest income reported by the company increased by 17% from $86 million in Q4 2019 to $101 million in Q1 2020.
  8. Invesco reported a massive decline in Earnings per share(EPS)-
  • The diluted EPS reported for Q1 2019 was $1.05.
  • The diluted EPS reported for Q1 2020 was negative $10.38
  1. Invesco took a few actions to improve its liquidity condition and decrease its leverage –
  • The company sold mortgage-backed (“MBS”) and credit risk transfer securities (“GSE CRTs”) for cash proceeds of $16.2 billion.
  • Repaid $11.2 billion of repurchase agreements.
  1. Average Assets for Invesco decreased by 16% from $21.3 billion in the fourth quarter of 2019 to $17.8 billion in the first quarter of 2020.
  2. Total borrowings also decreased by 16% from $19.7 billion in Q4 2019 to $16.5 billion in Q1 2020.
  3. The debt-to-equity ratio decreased to 5.4x in Q1 2020 from 6.5x in the last quarter.

The Atlanta based company decided not to present its core earnings for Q1 2020.

MOVING FORWARD

The Covid-19 pandemic led to falling in economy and disruption in financial markets.  REIT industry is one of the industries highly affected by the outbreak. The biggest issue for the industry is to maintain its distribution requirements to investors during this crisis.

As per the report, “As of May 31, 2020, the Company had a total investment portfolio, excluding cash and Agency CMBS purchase commitments, of approximately $1.6 billion consisting of 92% commercial credit investments, 7% residential credit investments, and 1% Agency mortgage-backed securities.”

As of 31st May 2020, Invesco reported a cash balance of approximately $328 million, of which $55 million is said to be restricted. Invesco’s primary focus as per its strategy reported would be Agency RMBS for income generation. The company plans to hedge interest rate risk, maintain a high liquidity profile, and preserve stockholder value.

As the markets are improving, Invesco’s strategy includes capturing the appreciation in its existing credit investments. The Company has planned to continue its focus on generating liquidity and reducing leverage in the second quarter of 2020.

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