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For investors looking for income, Real Estate Investment Trusts are often an excellent source of potential investments. Mortgage REITs are a unique segment among the REIT universe, and many have extremely high yields.

Mortgage REITs are not without risk. These companies purchase mortgages and generate income from the monthly mortgage payments. Mortgage REITs borrow money and then acquire mortgages and make a profit off the difference in the rate.

This article will discuss 3 top mortgage REITs for income investors.

High Yield Mortgage REIT: Sachem Capital (SACH)

Sachem Capital Corp is a Connecticut-based real estate finance company that specializes in originating, underwriting, funding, servicing, and managing a portfolio of short-term (i.e., three years or less) loans secured by first mortgage liens on real property located primarily in Connecticut.

Each of Sachem’s loans is personally guaranteed by the principal(s) of the borrower, which is typically collaterally secured by a pledge of the guarantor’s interest in the borrower. Sachem generates around $65 million in total revenues.

On August 14th, 2024, Sachem Capital posted its Q2 results for the period ending June 30th, 2024. Total revenues for the quarter came in at $15.2 million, down 7% compared to Q2-2023.

The decrease in interest income was due to lower number of loans originated, modified or extended in compared to last year. As a result, fee income from loans, primarily made up of origination fees, were down about 37.2% year-over-year.

Sachem has lately diversified its holdings, including originating larger loans with established developers. Sachem also continues to expand its lending operations across the U.S. and now has a presence in 14 states, with a strong core focus along the Eastern seaboard. Moving forward, there should be several key drivers to Sachem’s growth.

First, despite the rise in interest rates, Sachem believes there is a significant market opportunity for a well-capitalized “hard money” lender to originate attractively priced loans to small and mid-scale real estate developers with good collateral.

Second, the competitive landscape for Sachem remains favorable, as many banks and other traditional lenders still have restrictive lending criteria and many non-traditional lenders are under-capitalized.

Third, Connecticut's residential real estate market, its primary market, has stabilized and is quite strong. Finally, Sachem continues its expansion beyond Connecticut and has a growing presence in other states, especially in Florida and Texas.

SACH stock currently yields 12.1%.

High Yield Mortgage REIT: Annally Capital (NLY)

Annaly Capital Management, Inc. is an mREIT that invests in residential and commercial mortgages. The trust’s investments include agency mortgage-backed securities, non-agency residential mortgage assets, residential mortgage loans, commercial mortgage loans, securities, and other commercial real estate investments.

On July 24, 2024, Annaly announced its financial results for the quarter ending June 30, 2024. The company reported a GAAP net loss of $0.09 per average common share, while earnings available for distribution (EAD) were $0.68 per average common share for the quarter. The company achieved an economic return of 0.9% for the second quarter and 5.7% for the first half of 2024.

Book value per common share at the end of the quarter was $19.25. Annaly’s GAAP leverage ratio increased to 7.1x, up from 6.7x in the prior quarter, while economic leverage rose to 5.8x from 5.6x. The company declared a quarterly common stock cash dividend of $0.65 per share.

Annaly’s Mortgage Servicing Rights (MSR) portfolio ended the quarter with a market value of $2.8 billion, up 5% quarter-over-quarter, representing 22% of dedicated equity capital.

As long as the real estate market remains on sound footing, Annaly should continue to grow gradually and support its hefty dividend. NLY stock currently yields 13.2%.

High Yield Mortgage REIT: Ares Commercial Real Estate (ACRE)

Ares Commercial Real Estate Corporation is a specialty finance company primarily engaged in originating and investing in commercial real estate (“CRE”) loans and related investments. ACRE generated around $198.6 million in interest income last year. In terms of geographical diversification, ACRE’s exposure features a healthy mix between the Southeast, West, and Midwest.

On August 6th, 2024, ACRE reported its Q2 results for the period ending June 30th, 2024. Interest income came in at $40.8 million, 21% lower year-over-year.

The decline was due to the company’s loans struggling to perform as higher rates of inflation and certain cultural shifts such as work-from-home trends continue to impact the operating performance and the economic values of commercial real estate.

In the meantime, interest expense rose by 2% to about $27.5 million. Thus, total revenues (interest income - interest expenses + $3.43 million in revenue from ACRE’s own real estate) fell by 33% to roughly $16.8 million. Total expenses rose by about 25% to $8.0 million, primarily due to higher professional fees and new expenses from real estate owned previously absent.

Ares posted a net loss of $6.1 million versus a net loss of $2.2 million last year. Distributable EPS for the quarter was a negative ($0.12) compared to a negative $0.29 last year. Our past figures in our per-share table reflect GAAP metrics.

ACRE has grown its asset base by increasing its loan commitments. Its diversified loan portfolio has led to a relatively robust EPS performance over the past decade. The fluctuations in EPS are attributable to ACRE’s investment yields, interest rates, the percentage of contractual payments received, and weighted average remaining life of the underlying portfolio.

ACRE stock yields 13.7%

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