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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 gaining momentum, thanks to declining mortgage rates and improvement in purchase originations and refinancing as the Federal Reserve reduced interest rates three times this year. Given this, the mREIT industry is likely to witness book value improvement in the near term as spreads in the Agency market tighten, driving asset prices.
However, receding prepayment spreads offer respite to the industry players by supporting asset yields and margins, whereas business diversification offers support. Hence, companies like Apollo Commercial Real Estate Finance (ARI - Free Report) , Ellington Financial LLC (EFC - Free Report) and NexPoint Real Estate Finance Inc. (NREF - Free Report) are well-positioned to capitalize on improving market trends.
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?
Fed Rate Cuts Came as Breather: The Fed has reduced the interest rate three times this year, followed by a 100-basis-point rate cut in 2024. With this, the Fed rates now stand at 3.5-3.75%. The central bank indicated an additional rate cut in 2026. With lower interest rates, earnings pressure for highly leveraged mREITs, which have been facing rising funding costs, will ease. This will help industry players to raise dividends. This may encourage mREIT investors and result in capital inflows from the industry, potentially improving book value in the upcoming period.
Lower Mortgage Rate to Increase Demand: The mREIT industry showed signs of recovery amid stabilizing interest rates and improving economic conditions. Given this, mortgage rates are trending downward. Further, mortgage spreads have been gradually narrowing as volatility declines and bond market conditions stabilize. With a gradual decrease in mortgage rates, purchase originations and refinancing activities will increase. This will reduce operational and financial challenges for originators and increase the gain on sale margin and investment activity.
Conservative Approach to Impede Returns: Although mortgage rates have declined, they are still relatively high. Going forward, the Fed rate cut policy, alongside economic indicators like inflation, bond yields and consumer confidence, will likely increase volatility in the mortgage market. Given this, mREITs are likely to be selective in their investments, resulting in lower portfolio growth. 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.
Zacks Industry Rank Indicates Bright Prospects
The Zacks REIT and Equity Trust industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #103, which places it in the top 42% 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.
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 gained 18.3% in the above-mentioned period against the broader sector’s rise of 20.1%. Further, the S&P Index has grown 21.3% 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 0.97X compared with the S&P 500’s 8.57X. In the past five years, the industry has traded as high as 1.07X, as low as 0.70X, and at the median of 0.91X.
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 4.33X. This is above the Zacks REIT and Equity Trust industry’s ratio, as the chart below shows.
Price-to-Book TTM
3 mREIT Stocks Worth Betting On
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. 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. 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 $1.83 per share over the past month, indicating year-over-year growth of 25.3%. EFC has a Zacks Rank of #2 (Buy) at present and a market capitalization of $1.53 billion.
Price and Consensus: EFC
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. The company’s $8.3-billion loan portfolio is secured by properties located in the United States and European gateway cities. The company is strategically redeploying capital from loan repayments and focusing asset sales into new originations with attractive risk-adjusted returns. With $1.0 billion of new loan originations in the third quarter, ARI continued to benefit from the strength of the Apollo real estate credit platform. It also continued to progress in freeing up non-performing capital for redeployment, and expects the resulting benefit to earnings to begin materializing in the fourth quarter of 2025.
The company’s 2025 earnings estimates have been unchanged at $1.05 per share over the past month, indicating year-over-year growth of 144.2%. It has a market capitalization of $1.38 billion. The company has a Zacks Rank of 2 at present.
Price and Consensus: ARI
NexPoint: The company originates, structures and invests in first mortgage loans, mezzanine loans, preferred equity and alternative structured financings in commercial real estate properties, as well as multi-family commercial mortgage-backed securities.
NREF continues to identify and attract investment opportunities across its target markets and asset classes with a commitment to thorough evaluation aimed at enhancing shareholder value. The company remains optimistic about the resilience of multi-family rentals and single-family homes for rent, which benefit from strong long-term housing demand trends.
NexPoint is focused on operational resilience by originating new secured loans, while managing debt risks and maintaining funding stability. Its investments in the multi-family and single-family segments are well-positioned, supported by historical performance and a favorable rent versus own dynamic that provides long-term momentum for the sector.
The company’s 2025 earnings estimates have been unchanged at $1.83 per share over the past month, indicating year-over-year growth of 1.7%. NREF has a Zacks Rank of #1 (Strong Buy) at present and a market capitalization of $247.4 million. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: NREF
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3 mREIT Stocks to Keep on Your Radar Amid Challenging Industry Trends
The Zacks REIT and Equity Trust industry is gaining momentum, thanks to declining mortgage rates and improvement in purchase originations and refinancing as the Federal Reserve reduced interest rates three times this year. Given this, the mREIT industry is likely to witness book value improvement in the near term as spreads in the Agency market tighten, driving asset prices.
However, receding prepayment spreads offer respite to the industry players by supporting asset yields and margins, whereas business diversification offers support. Hence, companies like Apollo Commercial Real Estate Finance (ARI - Free Report) , Ellington Financial LLC (EFC - Free Report) and NexPoint Real Estate Finance Inc. (NREF - Free Report) are well-positioned to capitalize on improving market trends.
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?
Fed Rate Cuts Came as Breather: The Fed has reduced the interest rate three times this year, followed by a 100-basis-point rate cut in 2024. With this, the Fed rates now stand at 3.5-3.75%. The central bank indicated an additional rate cut in 2026. With lower interest rates, earnings pressure for highly leveraged mREITs, which have been facing rising funding costs, will ease. This will help industry players to raise dividends. This may encourage mREIT investors and result in capital inflows from the industry, potentially improving book value in the upcoming period.
Lower Mortgage Rate to Increase Demand: The mREIT industry showed signs of recovery amid stabilizing interest rates and improving economic conditions. Given this, mortgage rates are trending downward. Further, mortgage spreads have been gradually narrowing as volatility declines and bond market conditions stabilize. With a gradual decrease in mortgage rates, purchase originations and refinancing activities will increase. This will reduce operational and financial challenges for originators and increase the gain on sale margin and investment activity.
Conservative Approach to Impede Returns: Although mortgage rates have declined, they are still relatively high. Going forward, the Fed rate cut policy, alongside economic indicators like inflation, bond yields and consumer confidence, will likely increase volatility in the mortgage market. Given this, mREITs are likely to be selective in their investments, resulting in lower portfolio growth. 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.
Zacks Industry Rank Indicates Bright Prospects
The Zacks REIT and Equity Trust industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #103, which places it in the top 42% 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.
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 gained 18.3% in the above-mentioned period against the broader sector’s rise of 20.1%. Further, the S&P Index has grown 21.3% 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 0.97X compared with the S&P 500’s 8.57X. In the past five years, the industry has traded as high as 1.07X, as low as 0.70X, and at the median of 0.91X.
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 4.33X. This is above the Zacks REIT and Equity Trust industry’s ratio, as the chart below shows.
Price-to-Book TTM
3 mREIT Stocks Worth Betting On
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. 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. 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 $1.83 per share over the past month, indicating year-over-year growth of 25.3%. EFC has a Zacks Rank of #2 (Buy) at present and a market capitalization of $1.53 billion.
Price and Consensus: EFC
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. The company’s $8.3-billion loan portfolio is secured by properties located in the United States and European gateway cities. The company is strategically redeploying capital from loan repayments and focusing asset sales into new originations with attractive risk-adjusted returns. With $1.0 billion of new loan originations in the third quarter, ARI continued to benefit from the strength of the Apollo real estate credit platform. It also continued to progress in freeing up non-performing capital for redeployment, and expects the resulting benefit to earnings to begin materializing in the fourth quarter of 2025.
The company’s 2025 earnings estimates have been unchanged at $1.05 per share over the past month, indicating year-over-year growth of 144.2%. It has a market capitalization of $1.38 billion. The company has a Zacks Rank of 2 at present.
Price and Consensus: ARI
NexPoint: The company originates, structures and invests in first mortgage loans, mezzanine loans, preferred equity and alternative structured financings in commercial real estate properties, as well as multi-family commercial mortgage-backed securities.
NREF continues to identify and attract investment opportunities across its target markets and asset classes with a commitment to thorough evaluation aimed at enhancing shareholder value. The company remains optimistic about the resilience of multi-family rentals and single-family homes for rent, which benefit from strong long-term housing demand trends.
NexPoint is focused on operational resilience by originating new secured loans, while managing debt risks and maintaining funding stability. Its investments in the multi-family and single-family segments are well-positioned, supported by historical performance and a favorable rent versus own dynamic that provides long-term momentum for the sector.
The company’s 2025 earnings estimates have been unchanged at $1.83 per share over the past month, indicating year-over-year growth of 1.7%. NREF has a Zacks Rank of #1 (Strong Buy) at present and a market capitalization of $247.4 million. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: NREF