Mortgage REITs Are Making A Comeback

After a long bear market, mortgage real estate investment trusts (mREITs) are apparently making a comeback. Eight of the 12 best-performing REITs over the last five trading days have been mREITs. Four of the mREITs have also produced double-digit gains over the last month.

Several of these mREITs are low-priced and have been volatile over long time frames. But mREITs are extremely interest rate sensitive, and with the 10-year U.S. Treasury bonds peaking in October and having declined by three-quarters of a percent since then, mREITs have been able to find firm footing again. 

Take a look at three mREITs with the best total returns over the last five- and 30-day periods. 

Lument Finance Trust Inc. LFT is a New York City-based mREIT focused on commercial real estate debt investments, with 94% in the multifamily sector and the rest divided between senior housing and healthcare and self-storage facilities. Of its $1.4 billion loan portfolio, 28% is in Texas and 16.3% is in Florida. At the end of 2023, 96.7% of its loans were performing, just slightly below the 97.9% rate at the end of 2022. Lument Finance Trust is externally managed by Lument Investment Management LLC, an affiliate of ORIX Corp. USA.

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It would have taken a great deal of courage to buy shares of Lument Finance Trust in early May 2023 when it was trading at $1.46, but investors who did and have held the shares since then have a 73% gain to its recent closing price of $2.53.

Over the past month, Lument Finance Trust is up 10% and from March 18 to March 25, its total return has been 15%.

Lument Finance pays a quarterly dividend of $0.07 per share and the annual dividend of $0.28 per share presently yields 11.06%. The dividend was cut from $0.09 to $0.06 per share in March 2022 but was increased to $0.07 per share in September 2023. The payout ratio of 68.2% is moderate and fourth-quarter earnings and revenue were both solid improvements from the year-ago quarter, which reduces the possibility of another dividend cut anytime soon.

Acres Commercial Realty Corp. ACR is a Uniondale, New York-based mREIT that specializes in originating, holding and managing mortgage loans and other debt instruments for commercial real estate (CRE). Its main focus is on lending to multifamily properties. Acres Commercial is externally managed by ACRES Capital LLC, a subsidiary of ACRES Capital Corp.

Acres Commercial has a total of $2.2 billion in assets. Its most recent percentage of current loan portfolio payments is 98%. 

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On Nov. 30, Acres Commercial announced that its board has reauthorized an additional $10 million share repurchase program as well as continuing its preexisting program of $4.1 million of common stock.

On Feb. 28, Acres Commercial reported fourth-quarter earnings per share (EPS) of $0.55 per share, beating the estimate of $0.47. Revenue of $22.45 million was also ahead of the estimate of $19.6 million, although it was slightly below fourth-quarter 2022 revenue of $23.24 million.

Acres Commercial has been an incredible performer since the end of November, rising approximately 70% over that time. From March 18 to March 25, Acres Commercial Realty produced a total gain of 10.82%. Over the past month, its total gain is 21.1%.

One thing to keep in mind is that Acres Commercial only pays dividends on its preferred stock. The common stock dividend was suspended after 2019 and has not been reinstated.

Ellington Residential Mortgage REIT EARN is an Old Greenwich, Connecticut-based mREIT that acquires, invests in and manages residential mortgages and other real estate assets. Ellington uses residential mortgage-backed securities for which the principal and interest payments are backed by a U.S. government agency or government-sponsored entity. Ellington Residential is externally managed by investment adviser and affiliate Ellington Management Group LLC. Ellington Residential has $10.3 billion in assets under management.

On March 7, Ellington announced its next monthly dividend payment of $0.08 per share, which is payable on April 25 to shareholders as of March 29. The $0.96 per share annualized dividend presently yields 13.73%. The payout ratio is high at 86.4%, but the dividend is still covered and EPS has been steadily increasing over the past year. 

From March 18 through March 25, Ellington Residential had a total gain of 7.04%. Over the past month, its total gain is 17.05%.

Investor note: mREITs can be volatile and are not well-suited for more conservative investors. However, with the prospect of the Federal Reserve rate cuts coming, top-notch recent appreciation on all three and high dividend yields on two of them, these mREITs could be excellent, albeit more speculative purchases.

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