Amidst a volatile real estate market, Invesco Mortgage Capital (IVR) offers a compelling opportunity for income investors with its high distribution yield of 18.5%. Despite its challenging recent history, IVR is positioned to benefit from stabilizing interest rates and an improving outlook for the mortgage REIT sector. With Q1 earnings expected to beat estimates and a long-term strategy that aligns with expectations of interest rate cuts, IVR presents an attractive entry point below $9.
AGNC Investment Corp.’s recent equity pricing moves have slightly improved the safety of the preferred shares but have not done much for common share returns. The company’s tangible book value per share has shown improvement, and its 5.7% economic return metric was strong in the first quarter of 2024. However, AGNC’s leverage has inched up, and the company’s hedges on interest costs will eventually run out. Additionally, AGNC has been issuing equity at a high rate, which has diluted the potential upside for common shareholders. While the spread between mortgage-backed securities and Treasuries is currently favorable, AGNC’s longer-term track record suggests caution. The company’s preferred shares, particularly AGNCL, offer an interesting security with a wide spread to Treasuries.
Starwood Property Trust (STWD) continues to perform relatively well in a challenging real estate market, thanks to its diversified business model. The mortgage REIT has faced headwinds from rising interest rates, but its exposure to floating-rate loans, owned properties, and real estate services has provided some insulation.
STWD’s largest lending segment is multifamily, and the REIT also has exposure to office, RMBS, and infrastructure. The company’s portfolio is well-diversified across asset classes and geography, which provides some protection against downturns in any one sector or region.
While the outlook for the REIT sector remains cloudy, STWD is well-positioned to weather the storm. The company has a strong balance sheet, a conservative underwriting approach, and a proven track record of success. As a result, STWD is one of the best mREITs to consider investing in today.
