2 Double-Digit Yielding Mortgage REITs Trading At A Sharp Discount May Be Set To Pop

When investing in mortgage real estate investment trusts (REITs) it is important to remember that these firms lend money directly to owners and operators of real estate or indirectly through the purchase of mortgages or mortgage-backed securities. This way, mortgage REITs earn interest from its investments without actually owning the property.

Meanwhile, mortgage REITs have a 10-year annualized return of 8.2% and a three year annualized return of 10.3%, as of Sept. 30, 2019, reported by SP Global. It may be wise to hold a mortgage REIT for a shorter duration and profit from the short-term volatility when it pops above its book value, unless more debt is issued or dividends are increased.

Here are two double-digit yielding mortgage REITs currently trading at a sharp discount:

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• Franklin BSP Realty Trust Inc. FBRT offers a dividend yield of 10.45% or $1.40 per share annually, conducting quarterly payments, with a track record of increasing its dividends for once in the past year. This private real estate investment trust originates, acquires, and manages a diversified portfolio of commercial real estate debt — primarily first mortgage loans. It has a book value per share of $15.83, with over $1.4 trillion in assets under management. In the fourth quarter of 2021, Franklin BSP Realty closed a record $1.6 billion of commitments, resulting in record annual originations of 95 loans totaling approximately $3.2 billion of commitments for the year.
• Seven Hills Realty Trust SEVN is offering a dividend yield of 10.91% or $1.00 per share annually, using quarterly payments, with an inconsistent track record of increasing its dividends. Formerly RMR Mortgage Trust, this fund is engaged in the business of originating and investing in first mortgage whole loans secured by the middle market and transitional commercial real estate. “During the third quarter, earnings increased sequentially, our quarterly distribution remained well covered and total committed capital increased to $763 million,” said Seven Hills president Tom Lorenzini. Seven Hills Realty has a book value per share of $18.24, as of Sept. 30, 2022, with more than $37 billion in assets under management.

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