When investing in mortgage real estate investment trusts (REITs) it is key to remember that these types of REITs do not actually own the property, rather they lend money directly or indirectly to owners and operators of the real estate. During periods of rising interest rates, short-term REITs outperformed the Dow Jones Industrial Average in all seven periods, producing an average excess return of 5.7%.
Meanwhile, long-term REITs outperformed the Dow Jones Industrial Average in four out of seven periods during rising interest rates, achieving an average excess return of 0.1%. Furthermore, mortgage REITs tend to have an average return of at least 8.2% over a trailing 10-year period, as recorded by SP Global, with data starting from Sep. 30, 2019.
Check out these two mortgage REITs with soaring yields and currently trading below book value.
NexPoint Real Estate Inc. NREF is offering a dividend yield of 10.78% or $2.00 per share annually, through quarterly payments, with a track record of increasing its dividends once in the past year. NexPoint Real Estate provides structured financing solutions by investing in single-family rental, mid-sized multifamily, storage and select-service, and extended-stay hospitality properties.
As of the third quarter of 2022, NexPoint Real Estate has a total portfolio of at least $1.7 billion, composed of 83 investments with an average remaining term of 6.2 years. NexPoint has a book value per share of $23.48, shares of NREF closed at $18.63 on Friday.
iStar Inc. STAR is offering a dividend yield of 6.28% or 50 cents per share annually, making quarterly payments, with a decent track record of increasing its dividends for two consecutive years. iStar is the founder, investment manager and largest shareholder of Safehold SAFE, owning approximately two-thirds of its shares, and is responsible for its strategy and growth.
In the third quarter of 2022, Safehold closed $284 million of new originations, bringing Safehold's total aggregate portfolio to $6.1 billion and total Undefinitized Contract Actions (UCA) to approximately $10.5 billion. As STAR shares closed at $8.04 on Friday, IStar has a book value per share of $19.38.
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