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: Orchid Island Capital (ORC)

Orchid Island Capital, Inc. is an mREIT that is externally managed by Bimini Advisors LLC and focuses on investing in residential mortgage-backed securities (RMBS), including pass-through and structured agency RMBSs.

These financial instruments generate cash flow based on residential loans such as mortgages, subprime, and home-equity loans.

Orchid Island reported a net loss of $5.0 million for the second quarter of 2024, translating to a loss of $0.09 per common share. This missed analysts’ expectations by $0.02 per share. The company’s revenue was reported at negative $697,000, reflecting a year-over-year decrease of 92.04%, although it did surpass expectations by $2.47 million.

The loss per share included net interest expense of $0.7 million and total expenses of $4.4 million, partially offset by net realized and unrealized gains of $0.1 million on Residential Mortgage-Backed Securities (RMBS) and derivative instruments, including net interest income on interest rate swaps.

The company declared and paid dividends of $0.36 per common share during the quarter, while the book value per common share stood at $8.58 as of June 30, 2024.

The total return for the quarter was negative 1.97%, which was the result of the $0.36 dividend per share and a $0.54 decrease in book value per share. Orchid Island maintained a strong liquidity position, with $265.3 million in cash and cash equivalents and unpledged securities, representing 48% of stockholders' equity.

ORC currently yields 17.6%.

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%.

High Yield Mortgage REIT: ARMOUR Residential REIT (ARR)

ARMOUR Residential (ARR) is a mortgage REIT that was formed in 2008. The trust invests primarily in residential mortgage-backed securities that are guaranteed or issued by a United States government entity including Fannie Mae, Freddie Mac and Ginnie Mae. ARMOUR has a $990 million market capitalization. 

The company's assets as of June 30, 2024, totaled $10,052.3 million, with liabilities amounting to $8,891.0 million and total stockholders' equity of $1,161.3 million. 

ARMOUR Residential REIT, Inc. (ARR) reported its unaudited second-quarter 2024 financial results and financial position as of June 30, 2024. The company announced a GAAP net loss related to common stockholders of $(51.3) million or $(1.05) per common share. The company generated net interest income of $7.0 million and distributable earnings available to common stockholders of $52.5 million, equating to $1.08 per common share. 

ARMOUR paid common stock dividends of $0.24 per share per month, totaling $0.72 per share for the second quarter. The average interest income on interest-earning assets was 5.00%, while the interest cost on average interest-bearing liabilities was 5.52%. The economic interest income was 4.74%, with an economic net interest spread of 2.05%. 

As of June 30, 2024, ARMOUR's book value per common share was $20.30, down from $22.07 on March 31, 2024. The company's liquidity, including cash and unencumbered agency and U.S. government securities, stood at $630.2 million. The agency mortgage-backed securities (MBS) portfolio totaled $8.9 billion, with TBA Agency Securities totaling $1.2 billion. 

Repurchase agreements, net, amounted to $7.1 billion, 56.5% of which were with ARMOUR affiliate BUCKLER Securities LLC. The debt-to-equity ratio was 6.09:1, and the implied leverage, including TBA Securities and forward settling sales and unsettled purchases, was 7.44:1. Interest rate swap contracts totaled $8.3 billion of notional amount.

ARR currently yields 14%.