2 Mortgage REITs With Soaring Yields And Short-Term Loans That Perform Better With Rising Interest Rates

Zinger Key Points
  • Short-term duration REITs showed higher returns five out of the seven times, when the Fed was raising interest rates.
  • Ares currently has $334 billion in assets under management as of June 30, 2022.
2 Mortgage REITs With Soaring Yields And Short-Term Loans That Perform Better With Rising Interest Rates

There are two main classifications of real estate investment trusts (REITs): mortgage and equity. For the purpose of this article, we will focus on mortgage REITs.

The main difference is that mortgage REITs earn money by directly or indirectly lending to owners and operators, which can be through the purchase of mortgages or mortgage-backed securities.

Therefore, equity REITs actually own and operate real estate and primarily earn income through rents.

See Also: Rapidly Growing REIT Sustains 8% Dividend In Bear Market

REITs with short-term durations ranging from one to five years, tend to outperform long-term duration REITs during periods of rising rates. Short-term duration REITs showed higher returns five out of the seven times, when the Fed was raising interest rates.

Lastly, short-term REITs have the highest average excess return of 5.7%, during periods of rising rates found from Oct. 2001 to May 2018.

  • Ares Commercial Real Estate Corporation ACRE is offering a dividend yield of 11.89% or $1.32 per share annually, conducting quarterly payments, with an inconsistent track record of increasing its dividend payments. This specialty finance company and a mortgage REIT, which provides commercial real estate loans and related investments, currently has $334 billion in assets under management as of June 30. The firm’s investment strategy focuses on short-term loans, typically three years with extension options, that are transitional with stable cash flows. These loans are senior focused with its sizes ranging between $10 million to $250 million, and its property types include; multifamily, industrial, self-storage, office, mixed-use, hotel, residential, and condominiums.
  • Starwood Property Trust Inc. STWD offers a dividend yield of 10.05% or $1.92 per share annually, using quarterly payments, with an inconsistent track record of increasing its dividend payments. This REIT, which is principally engaged in acquiring and managing commercial mortgage loans and commercial mortgage-backed securities in the U.S. and Europe, saw its portfolio increase to a record size of $27 billion in the second quarter. Starwood’s assets under management as of August were over $115 billion. Meanwhile, this mortgage REIT has 46 loans in its infrastructure segment with an average size of $55 million, and a weighted average life of 4.1 years.

Also Read: With Prices Dropping And Interest Rates Rising, Is Now A Good Time To Invest In Real Estate?

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