3 mREIT Stocks to Keep on Your Radar Amid Challenging Industry Trends

Core Viewpoint - The Zacks REIT and Equity Trust industry is experiencing volatility in mortgage rates due to macroeconomic uncertainty, leading to earnings pressure in the near term [1] Industry Overview - The Zacks REIT and Equity Trust industry consists of mortgage REITs (mREITs) that invest in and originate mortgages and mortgage-backed securities (MBS), providing mortgage credit for homeowners and businesses [3] - mREITs typically focus on either residential or commercial mortgage markets, with some investing in both through asset-backed securities [3] - Agency securities, backed by the federal government, are considered safer investments, limiting credit risks [3] - Key revenue metrics for mREITs include net interest margin, which is the spread between interest income on mortgage assets and funding costs [3] Current Challenges - The industry is facing dividend cuts as book values erode due to tightened mortgage spreads and expected higher interest rates, leading to earnings pressure for highly leveraged mREITs [4] - A conservative investment approach is likely to impede returns, as mREITs prioritize risk and liquidity management over growth [5] - Despite a recent Federal Reserve rate cut, mortgage rates remain below the 52-week average of 6.71%, which is driving renewed interest in purchase applications and refinancing activities [6] Industry Performance - The Zacks REIT and Equity Trust industry ranks 185, placing it in the bottom 24% of 243 Zacks industries, indicating underperformance in the near term [7] - The industry's current-year earnings estimate has decreased by 8.1% over the last year, reflecting a negative earnings outlook [8] - Over the past year, the industry has declined by 6.2%, while the broader Zacks Finance sector rose by 17.1% and the S&P 500 grew by 18.2% [10] Valuation Metrics - The industry is currently trading at a trailing 12-month price-to-book (P/BV) ratio of 1.00X, compared to the S&P 500's 8.8X [13] - The Zacks Finance sector's trailing 12-month P/BV is 4.32X, indicating that the REIT and Equity Trust industry is trading at a significant discount [15] Company Highlights - Annaly Capital Management (NLY): Focuses on prudent asset selection and effective capital allocation, with a diversified investment strategy that includes Agency MBSs and non-agency assets [17][18]. The company's 2025 earnings are estimated at $2.89 per share, reflecting a 7% year-over-year increase [19] - Apollo Commercial Real Estate Finance (ARI): Engages in originating and managing commercial mortgage loans, benefiting from a robust origination pipeline and disciplined capital recycling strategy [22][23]. The company's 2025 earnings estimates are $1.04 per share, indicating a 141.9% year-over-year increase [24] - Ellington Financial (EFC): Invests in a diverse array of financial assets, including residential and commercial mortgage loans, and employs dynamic hedging strategies to manage risks [27][29]. The company's 2025 earnings estimates are $1.74 per share, reflecting a 19.2% year-over-year growth [30]