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3 mREIT Stocks to Keep on Your Radar Amid Challenging Industry Trends
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The Zacks REIT and Equity Trust industry is facing volatility in mortgage rates due to macroeconomic uncertainty. With rates likely to remain relatively higher, the industry players will continue to face earnings pressure in the near term.
However, despite ongoing affordability challenges in the housing market, purchase originations and refinancing activities are witnessing an improving trend. With this, companies like Annaly Capital Management (NLY - Free Report) , Apollo Commercial Real Estate Finance (ARI - Free Report) , and Ellington Financial LLC (EFC - Free Report) are well-poised to navigate industry challenges.
About the Industry
The Zacks REIT and Equity Trust industry comprises mortgage REITs, also known as mREITs. Industry participants invest in and originate mortgages and mortgage-backed securities (MBS), and provide mortgage credit for homeowners and businesses. Typically, these companies focus on either the residential or commercial mortgage markets. Some invest in both markets through asset-backed securities. Agency securities are backed by the federal government, making them safer bets and limiting credit risks. Such REITs raise funds in the debt and equity markets through common and preferred equity, repurchase agreements, structured financing, convertible and long-term debt, and other credit facilities. The net interest margin, the spread between interest income on mortgage assets and securities held, as well as funding costs, is a key revenue metric for mREITs.
What's Shaping the Future of the mREIT Industry?
Industry Resorts to Dividend Cuts as Book Values Erode: Mortgage spreads have tightened substantially since the "Liberation Day," but are still wide, based on current volatility levels. As such, agency mortgage REITs are witnessing a slight decline in tangible book value. Though the Federal Reserve lowered interest rates by 25 basis points last month, rates are expected to remain relatively higher in the near term. This will lead to earnings pressure for highly leveraged mREITs. This scenario compels industry players to reduce dividends to a level that can be covered by earnings. This may result in capital outflows from the industry, resulting in a book value decline for companies in the near term.
Conservative Approach to Impede Returns: The volatile scenario in mortgage markets, uncertain financial conditions and resultant lower fixed-income fund flows have strained credit-risky assets. Given this, mREITs are likely to be selective in their investments, resulting in lower portfolio growth. Also, numerous industry players have resorted to a higher hedge ratio to reduce interest rate risks. While such moves may seem prudent in the ongoing uncertain times, they will impede growth. As companies prioritize risk and liquidity management over incremental returns, at least in the short term, robust returns are expected to remain elusive.
Relatively Lower Mortgage Rate to Aid Loan Demand: Although the Fed’s recent rate cut has not led to a significant drop in mortgage rates, current levels remain below the 52-week average of 6.71%. This relative improvement is driving renewed interest in purchase applications and refinancing activities, reflecting latent demand in the housing market. As origination and refinancing volumes increase, operational and financial pressures on mREIT industry participants are expected to ease, leading to higher gain-on-sale margins and expanded investment activity.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks REIT and Equity Trust industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #185, which places it in the bottom 24% of 243 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of the negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. The industry’s current-year earnings estimate moved 8.1% down over the last year.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector & S&P 500
The Zacks REIT and Equity Trust industry has underperformed the broader Zacks Finance sector and the S&P 500 composite in the past year.
The industry has declined 6.2% in the above-mentioned period against the broader sector’s rise of 17.1%. Further, the S&P Index has grown 18.2% over the past year.
Price Performance
Industry's Current Valuation
Based on the trailing 12-month price-to-book (P/BV), which is a commonly used multiple for valuing mREITs, the industry is trading at 1.00X compared with the S&P 500’s 8.8X. In the past five years, the industry has traded as high as 1.06X, as low as 0.70X, and at the median of 0.90X.
Price-to-Book TTM
As finance stocks typically have a low P/BV ratio, comparing REIT and Equity Trust with the S&P 500 may not make sense to many investors. A comparison of the group’s P/BV ratio with that of the broader sector ensures that the group is trading at a solid discount. The Zacks Finance sector’s trailing 12-month P/BV came in at 4.32X. This is above the Zacks REIT and Equity Trust industry’s ratio, as the chart below shows.
Price-to-Book TTM
3 mREIT Stocks to Keep an Eye on
Annaly: The company's investment strategy is driven by the prudent selection of assets and effective capital allocation to achieve stable returns. Its investment strategy involves traditional Agency MBSs, which provide downside protection, and investments in more non-agency and credit-focused asset classes that enhance returns.
NLY is focusing on improving its capabilities by acquiring newly originated MSRs from its partner network, which will continue to provide a strong advantage in expanding its MSR business. Its diversified investment strategy will likely be a key contributor to long-term growth and stability. By diversifying its investments across the mortgage market, the company is better-positioned to capitalize on opportunities as they occur in multiple areas while limiting the risks associated with overexposure to any particular location.
The company’s 2025 earnings have been unchanged at $2.89 per share over the past month. It indicates a year-over-year rise of 7%. NLY currently has a Zacks Rank of #3 (Hold) and a market capitalization of $13.1 billion.
Price and Consensus: NLY
Apollo Commercial: The New York-based REIT company focuses on originating, acquiring, investing in and managing performing commercial mortgage loans, subordinate financings and other commercial real estate-related debt investments.
ARI is capitalizing on the ongoing resurgence in the commercial real estate market with a healthy and diversified pipeline across multiple property types. Leveraging the breadth of its global real estate credit platform, ARI continues to benefit from a robust origination pipeline, enabling the company to efficiently deploy capital received from loan repayments into new, high-quality transactions. This disciplined capital recycling strategy minimizes cash drag and supports the continued growth of a well-balanced, diversified loan portfolio, positioned to deliver sustainable long-term returns.
The company’s 2025 earnings estimates have been unchanged at $1.04 per share over the past month, indicating a year-over-year upsurge of 141.9%. ARI has a Zacks Rank of #3 at present and a market capitalization of $1.39 billion.
Price and Consensus: ARI
Ellington Financial: The company invests in a diverse array of financial assets. These include residential and commercial mortgage loans and mortgage-backed securities, consumer loans, and asset-backed securities. The assets are supported by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments.
EFC is well-positioned to weather volatility in the mortgage market, supported by its diversified exposure across residential and commercial mortgage loan portfolios and strong momentum in its securitization platform. The company’s loan originations, especially in commercial mortgage bridge loans, proprietary reverse mortgages, and closed-end second lien loans, continue to contribute to stable growth and income.
To navigate market uncertainty, Ellington Financial is actively leveraging dynamic hedging strategies, maintaining a broad and balanced portfolio, securing multiple sources of financing and operating with low leverage. These measures reflect a disciplined approach to risk management and a commitment to preserving book value while adapting to shifting market conditions.
The company’s 2025 earnings estimates have been unchanged at $1.74 per share over the past month, indicating year-over-year growth of 19.2%. EFC has a Zacks Rank of #2 (Buy) at present and a market capitalization of $1.33 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: EFC
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3 mREIT Stocks to Keep on Your Radar Amid Challenging Industry Trends
The Zacks REIT and Equity Trust industry is facing volatility in mortgage rates due to macroeconomic uncertainty. With rates likely to remain relatively higher, the industry players will continue to face earnings pressure in the near term.
However, despite ongoing affordability challenges in the housing market, purchase originations and refinancing activities are witnessing an improving trend. With this, companies like Annaly Capital Management (NLY - Free Report) , Apollo Commercial Real Estate Finance (ARI - Free Report) , and Ellington Financial LLC (EFC - Free Report) are well-poised to navigate industry challenges.
About the Industry
The Zacks REIT and Equity Trust industry comprises mortgage REITs, also known as mREITs. Industry participants invest in and originate mortgages and mortgage-backed securities (MBS), and provide mortgage credit for homeowners and businesses. Typically, these companies focus on either the residential or commercial mortgage markets. Some invest in both markets through asset-backed securities. Agency securities are backed by the federal government, making them safer bets and limiting credit risks. Such REITs raise funds in the debt and equity markets through common and preferred equity, repurchase agreements, structured financing, convertible and long-term debt, and other credit facilities. The net interest margin, the spread between interest income on mortgage assets and securities held, as well as funding costs, is a key revenue metric for mREITs.
What's Shaping the Future of the mREIT Industry?
Industry Resorts to Dividend Cuts as Book Values Erode: Mortgage spreads have tightened substantially since the "Liberation Day," but are still wide, based on current volatility levels. As such, agency mortgage REITs are witnessing a slight decline in tangible book value. Though the Federal Reserve lowered interest rates by 25 basis points last month, rates are expected to remain relatively higher in the near term. This will lead to earnings pressure for highly leveraged mREITs. This scenario compels industry players to reduce dividends to a level that can be covered by earnings. This may result in capital outflows from the industry, resulting in a book value decline for companies in the near term.
Conservative Approach to Impede Returns: The volatile scenario in mortgage markets, uncertain financial conditions and resultant lower fixed-income fund flows have strained credit-risky assets. Given this, mREITs are likely to be selective in their investments, resulting in lower portfolio growth. Also, numerous industry players have resorted to a higher hedge ratio to reduce interest rate risks. While such moves may seem prudent in the ongoing uncertain times, they will impede growth. As companies prioritize risk and liquidity management over incremental returns, at least in the short term, robust returns are expected to remain elusive.
Relatively Lower Mortgage Rate to Aid Loan Demand: Although the Fed’s recent rate cut has not led to a significant drop in mortgage rates, current levels remain below the 52-week average of 6.71%. This relative improvement is driving renewed interest in purchase applications and refinancing activities, reflecting latent demand in the housing market. As origination and refinancing volumes increase, operational and financial pressures on mREIT industry participants are expected to ease, leading to higher gain-on-sale margins and expanded investment activity.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks REIT and Equity Trust industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #185, which places it in the bottom 24% of 243 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of the negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. The industry’s current-year earnings estimate moved 8.1% down over the last year.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector & S&P 500
The Zacks REIT and Equity Trust industry has underperformed the broader Zacks Finance sector and the S&P 500 composite in the past year.
The industry has declined 6.2% in the above-mentioned period against the broader sector’s rise of 17.1%. Further, the S&P Index has grown 18.2% over the past year.
Price Performance
Industry's Current Valuation
Based on the trailing 12-month price-to-book (P/BV), which is a commonly used multiple for valuing mREITs, the industry is trading at 1.00X compared with the S&P 500’s 8.8X. In the past five years, the industry has traded as high as 1.06X, as low as 0.70X, and at the median of 0.90X.
Price-to-Book TTM
As finance stocks typically have a low P/BV ratio, comparing REIT and Equity Trust with the S&P 500 may not make sense to many investors. A comparison of the group’s P/BV ratio with that of the broader sector ensures that the group is trading at a solid discount. The Zacks Finance sector’s trailing 12-month P/BV came in at 4.32X. This is above the Zacks REIT and Equity Trust industry’s ratio, as the chart below shows.
Price-to-Book TTM
3 mREIT Stocks to Keep an Eye on
Annaly: The company's investment strategy is driven by the prudent selection of assets and effective capital allocation to achieve stable returns. Its investment strategy involves traditional Agency MBSs, which provide downside protection, and investments in more non-agency and credit-focused asset classes that enhance returns.
NLY is focusing on improving its capabilities by acquiring newly originated MSRs from its partner network, which will continue to provide a strong advantage in expanding its MSR business. Its diversified investment strategy will likely be a key contributor to long-term growth and stability. By diversifying its investments across the mortgage market, the company is better-positioned to capitalize on opportunities as they occur in multiple areas while limiting the risks associated with overexposure to any particular location.
The company’s 2025 earnings have been unchanged at $2.89 per share over the past month. It indicates a year-over-year rise of 7%. NLY currently has a Zacks Rank of #3 (Hold) and a market capitalization of $13.1 billion.
Price and Consensus: NLY
Apollo Commercial: The New York-based REIT company focuses on originating, acquiring, investing in and managing performing commercial mortgage loans, subordinate financings and other commercial real estate-related debt investments.
ARI is capitalizing on the ongoing resurgence in the commercial real estate market with a healthy and diversified pipeline across multiple property types. Leveraging the breadth of its global real estate credit platform, ARI continues to benefit from a robust origination pipeline, enabling the company to efficiently deploy capital received from loan repayments into new, high-quality transactions. This disciplined capital recycling strategy minimizes cash drag and supports the continued growth of a well-balanced, diversified loan portfolio, positioned to deliver sustainable long-term returns.
The company’s 2025 earnings estimates have been unchanged at $1.04 per share over the past month, indicating a year-over-year upsurge of 141.9%. ARI has a Zacks Rank of #3 at present and a market capitalization of $1.39 billion.
Price and Consensus: ARI
Ellington Financial: The company invests in a diverse array of financial assets. These include residential and commercial mortgage loans and mortgage-backed securities, consumer loans, and asset-backed securities. The assets are supported by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments.
EFC is well-positioned to weather volatility in the mortgage market, supported by its diversified exposure across residential and commercial mortgage loan portfolios and strong momentum in its securitization platform. The company’s loan originations, especially in commercial mortgage bridge loans, proprietary reverse mortgages, and closed-end second lien loans, continue to contribute to stable growth and income.
To navigate market uncertainty, Ellington Financial is actively leveraging dynamic hedging strategies, maintaining a broad and balanced portfolio, securing multiple sources of financing and operating with low leverage. These measures reflect a disciplined approach to risk management and a commitment to preserving book value while adapting to shifting market conditions.
The company’s 2025 earnings estimates have been unchanged at $1.74 per share over the past month, indicating year-over-year growth of 19.2%. EFC has a Zacks Rank of #2 (Buy) at present and a market capitalization of $1.33 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: EFC