As Rates Rise, 2 Mortgage REITs to Check out, and 1 to Ignore

The stock market volatility is evident from the CBOE Volatility Index’s 32% year-to-date gains amid the record high inflation, the Fed’s aggressive rate hikes, and geopolitical issues. However, Real Estate Investment Trusts (REITs) have witnessed record operating performance in the last quarter.

Occupancy of total REIT-owned properties increased to 93.7%, while FFO reached a record high of $19.60 billion. Nareit Executive Vice President of Research and Investor Outreach, John Worth, said, “REITs delivered strong operating performance despite concerns about a slowing economy.”

Investors’ interest in REITs is evident from the iShares U.S. Real Estate ETF’s (IYR) 2.6% returns over the past month. Moreover, rising rates have been benefitting mortgage REITs. And the Fed might raise its benchmark interest rates by another 50 or 75 bps in September.

In addition, according to Allied Market Research, the global mortgage lending market is projected to grow at a CAGR of 9.5% from 2022 to 2031.

Thus, quality mortgage REITs BrightSpire Capital, Inc. (BRSP) and TPG RE Finance Trust, Inc. (TRTX) could be solid additions to your portfolio. However, Annaly Capital Management, Inc. (NLY) might be best avoided now, considering its weak financials.

Stocks to Buy:

BrightSpire Capital, Inc. (BRSP)

BRSP operates as a commercial real estate (CRE) credit real estate investment trust in the United States. It focuses on originating, acquiring, financing, and managing a portfolio of CRE senior mortgage loans, mezzanine loans, preferred equity, debt securities, and net leased properties.

BRSP’s net interest income increased 25% year-over-year to $32.76 million for the second quarter ended June 30, 2022. Its adjusted earnings came in at $31.45 million, up 16.2% year-over-year, while its adjusted EPS came in at $0.24, up 20% year-over-year.

BRSP’s revenue is expected to increase 11.2% year-over-year to $114.13 million in 2022. Its EPS is expected to grow 11.5% year-over-year to $0.97 in 2022. It surpassed EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 7.1% to close the last trading session at $8.85.

BRSP’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Also, the stock has a B grade for Growth, Value, and Sentiment. Within the REITs – Mortgage industry, it is ranked #2 out of 29 stocks. Click here to see the additional POWR Ratings for Momentum, Stability, and Quality for BRSP.

TPG RE Finance Trust, Inc. (TRTX)

TRTX, a commercial real estate finance company, originates, acquires, and manages commercial mortgage loans and other commercial real estate-related debt instruments in the United States.

TRTX’s interest income increased 6.6% year-over-year to $66.02 million for the second quarter ended June 30, 2022. Its total other revenue came in at $629,000, up 300.6% year-over-year. Moreover, its cash and cash equivalents came in at $355.99 million for the period ended June 30, 2022, compared to $260.63 million for the period ended December 31, 2021.

Street expects TRTX’s revenue to increase 6.5% year-over-year to $160.48 million in 2023. Its EPS is expected to grow 5% per annum for the next five years. Its shares have lost marginally intraday to close the last trading session at $9.77.

TRTX has an overall B rating, equating to a Buy in our proprietary rating system. In addition, it has a B grade for Value and Stability.

TRTX is ranked first in the REITs – Mortgage industry. Click here to see the additional POWR Ratings for TRTX (Growth, Momentum, Sentiment, and Quality).

Stock to Avoid:

Annaly Capital Management, Inc. (NLY)

NLY, a diversified capital manager, engages in mortgage finance and corporate middle market lending. NLY aims to combine the power of capital with a sound strategy to serve its shareholders best.

NLY’s comprehensive loss came in at $1.01 billion for the second quarter ended June 30, 2022, up 84.7% year-over-year. Its cash and cash equivalents came in at $853.93 million for the period ended June 30, 2022, compared to $1.34 billion for the period ended December 31, 2021.

NLY’s EPS is estimated to decrease 7.8% year-over-year to $1.07 in 2022. In addition, its EPS is estimated to fall 5% per annum for the next five years. Over the past year, the stock has lost 23.8% to close the last trading session at $6.63.

NLY’s poor prospects are evident in its POWR Ratings. The stock has a D grade for Stability. NLY is ranked #12 in the same industry. Click here to access the additional POWR Ratings for NLY (Growth, Value, Momentum, Sentiment, and Quality).

BRSP shares were trading at $8.95 per share on Thursday morning, up $0.10 (+1.13%). Year-to-date, BRSP has declined -8.71%, versus a -11.61% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

More...