Issue #21

13%+ Yields From 2 Mortgage REITs You Can’t Ignore

The real estate credit market is offering rare opportunities for income investors—especially in mortgage REITs (mREITs) trading at steep discounts but still yielding double digits. Two names stand out for very different reasons:

Angel Oak Mortgage REIT (NYSE: AOMR): A specialized residential mREIT focused on high-coupon Non-QM loans. While rising rates have pressured earnings, its strong securitization platform and potential Brookfield tie-up could unlock long-term upside.

Franklin BSP Realty Trust (NYSE: FBRT): A commercial mREIT heavily weighted to multifamily loans. Trading at just 74% of book value, FBRT is using massive CLO transactions and its new agency lending platform to close its dividend coverage gap.

Both REITs yield over 13% today, but their catalysts—and risks—are very different. For investors seeking high income plus discounted entry points, AOMR and FBRT deserve a closer look.

Angel Oak Mortgage REIT (NYSE:AOMR)

Angel Oak Mortgage REIT, Inc. is a real estate finance company operating as a mortgage REIT (mREIT). Its core business is acquiring and investing in first lien non-Qualified Mortgage (Non-QM) loans and other mortgage-related assets in the U.S. residential mortgage market. The company aims to generate attractive risk-adjusted returns for stockholders through cash distributions (dividends) and potential capital appreciation. It is externally managed by an affiliate of Angel Oak Capital Advisors, a firm with a vertically integrated mortgage origination and securitization platform.

Business Model and Revenue Streams 📦

AOMR's business model is fundamentally that of a leveraged investor in credit assets, seeking to profit from the spread between the interest earned on its mortgage assets and its cost of borrowing.

• Core Asset Focus: Non-QM Loans: These are residential mortgage loans that do not meet the strict "Qualified Mortgage" standards established after the 2008 financial crisis. They cater to creditworthy borrowers with non-traditional income profiles, such as self-employed individuals, small business owners, or investors. This segment offers higher interest rates (coupons) compared to traditional prime mortgages, which generates greater interest income for AOMR.
• Primary Revenue Stream: Net Interest Income (NII): NII is the difference between the income generated from its portfolio of mortgage assets (whole loans and loans in securitization trusts) and the cost of the financing (debt) used to acquire those assets.
• Securitization Strategy: A key component of AOMR's strategy is to actively securitize its whole loan holdings. This involves pooling loans and selling them as bonds (Angel Oak Mortgage Trust, or AOMT), which allows AOMR to generate gains, reduce risk exposure, and recycle capital to purchase new, higher-yielding loans.

Macroeconomic Impact on AOMR

The mREIT sector is highly sensitive to Federal Reserve policy and macro conditions, particularly AOMR's specialized focus:

• Rising Interest Rates (Headwind): High interest rates increase AOMR's interest expense on its recourse debt, compressing the crucial Net Interest Margin (NIM). This is the primary challenge to profitability.
• Non-QM Loan Demand (Tailwind): High interest rates also lead to higher coupon rates on newly originated Non-QM loans. AOMR purchased new loans with a weighted average coupon of 8.68% in Q2 2025, which helps expand future interest income.
• Securitization Market Strength (Tailwind): The ability to execute securitizations efficiently is vital. Management has highlighted that the securitization market, particularly for Non-QM loans, has been stable and strong in 2025, allowing AOMR to effectively manage its capital and leverage.
• Credit Quality (Risk): While AOMR focuses on creditworthy borrowers, a severe recession or downturn in the housing market could lead to increased loan delinquencies (currently at a manageable 2.35% for the whole loan portfolio), impacting the value of its assets.

Recent Performance and Corporate Developments 📈

AOMR's recent performance is a story of strong operational revenue growth being offset by rising interest expenses.

Q2 2025 Financial Highlights: 💰

• Interest Income Growth: Total interest income was $35.1 million, representing a robust 35% increase year-over-year, driven by the acquisition of higher-coupon assets.
• Net Interest Income (NII): NII was $9.9 million, a modest 5% increase year-over-year, reflecting the pressure from significantly higher interest expenses.
• EPS Miss: The company reported Distributable Earnings of $0.11 per diluted share, falling short of the Zacks Consensus Estimate of approximately $0.27. The substantial miss was primarily due to higher-than-expected interest expense from recent debt issuances.
• Book Value: GAAP Book Value per share was $10.37, and Economic Book Value was $12.97 as of June 30, 2025, with both figures declining slightly quarter-over-quarter, largely due to dividend payments exceeding distributable earnings.
• Balance Sheet: Recourse debt to equity was reduced to a conservative 1.1x, down from 2.3x in the previous quarter, reflecting prudent balance sheet management.

Strategic Initiatives and Corporate Developments: 🤝

• Capital Raising: AOMR issued $42.5 million in 9.750% Senior Notes in May 2025 to fund the purchase of new loans, albeit at a high-interest cost.
• Securitization Execution: Completed two securitizations in Q2 2025 and planned for another in September 2025, demonstrating the continued efficiency of the company's vertically integrated model.
• External Management: News indicates the parent company, Angel Oak Capital Advisors, is undergoing a proposed majority investment by Brookfield Asset Management. While AOMR's advisory agreement is expected to remain substantially identical, this development links AOMR to the broader scale and resources of a global financial giant, which could be a long-term positive.

Dividend Analysis and Fair Value 🎯

Dividend Analysis

• Current Dividend: AOMR has declared a quarterly dividend of $0.32 per share for Q2 2025 (Annualized: $1.28).
• Current Yield: This translates to a high dividend yield of approximately 13.6%, which is the primary attraction for income investors.
• Coverage Risk: The key risk is the dividend payout ratio. The Distributable Earnings of $0.11 per share in Q2 2025 did not cover the $0.32 per share dividend, meaning the current dividend is unsustainable without improvement in NII or a reduction in interest expense. For mREITs, this shortfall often leads to Book Value erosion and potential future dividend cuts.

Fair Value and Price

• Fair Value Metric: The most critical valuation metric for an mREIT is the Price-to-Book Value (P/B) ratio.
• The closing price is near $9.45 (as of October 2025).
• The GAAP Book Value is $10.37.
• The Economic Book Value is $12.97.
• P/B Ratio (GAAP):
• Conclusion: Trading at approximately 0.91x its GAAP Book Value, the stock is trading at a discount. This suggests the market views the price as fair, but slightly undervalued, reflecting the perceived risk to the dividend and the negative impact of current interest rates on earnings.

Analyst Estimates and Ratings

• Consensus Rating: The consensus rating from a small group of analysts is a "Buy" (falling between Strong Buy and Hold). The high implied upside suggests strong conviction, aligning with the pattern of most analyst buy ratings in the last 30 days.
• Price Target: The average 12-month price target is approximately $10.00, with some estimates suggesting targets over $12. This implies an upside of approximately 6% to 37% from the current share price. Analyst models anticipate an improvement in full-year 2025 EPS to around $0.96 and a further increase to $1.26 in 2026, which would significantly improve the dividend coverage ratio.

Investor-Focused Takeaway: Is AOMR Right for Your Portfolio?

Angel Oak Mortgage REIT is a specialized income vehicle offering a high yield in the niche Non-QM sector of the mortgage market. The company is actively growing its asset base and benefiting from its internal securitization capability.

What to Watch in the Near Term: 📈

• Interest Rate Trends: Watch for any potential pause or cut in the Federal Funds Rate, which would immediately lower AOMR's interest expense and boost its NII.
• Dividend Coverage: The key metric to monitor is Distributable Earnings per share. It must rise significantly to cover the $0.32 dividend to avoid a cut in the coming quarters.
• Securitization Execution: Continued, successful securitization activity is essential for freeing up capital and driving NII growth.

Recommendation:

AOMR is a "Buy" for sophisticated, income-focused investors who believe interest rates will stabilize or decline into 2026. The stock is currently trading below its book value, offering a built-in margin of safety. If interest rate headwinds abate, the high coupon rates on its Non-QM assets and its strong securitization engine could drive a sharp increase in distributable earnings and stock price appreciation. However, investors must be prepared for the very real risk of a dividend reduction if net interest income does not improve quickly.

Franklin BSP Realty Trust (NYSE:FBRT)

Franklin BSP Realty Trust, Inc. is a Commercial Real Estate (CRE) debt Real Estate Investment Trust (REIT). It primarily focuses on originating, acquiring, and managing a diversified portfolio of CRE debt investments, which are largely first mortgage floating-rate loans secured by properties across the United States. Its core assets are mainly in the multifamily sector (approximately 74% of the portfolio), with very limited exposure to the troubled office sector (less than 3%). FBRT's business structure is designed to provide investors with exposure to the short-term CRE lending market and deliver income through high dividends.

Business Model and Revenue Streams 📦

FBRT operates as a leveraged lender, generating returns by borrowing short and lending long (or, in this case, by leveraging its capital to originate higher-yielding, short-term CRE loans).

• Primary Asset Focus: First mortgage bridge loans and other senior commercial real estate debt, primarily secured by multifamily (apartments) properties that require repositioning or transition financing.
• Primary Revenue Stream: Net Interest Income (NII): Since nearly 90% of its loans are floating-rate, FBRT’s NII is the spread between the interest income received from its borrowers (which rises with benchmark rates like SOFR) and its cost of borrowing.
• Financing Strategy: CRE CLOs: The company actively uses Commercial Real Estate Collateralized Loan Obligations (CRE CLOs) as its primary source of long-term, non-recourse funding. This securitization strategy provides efficient financing, allowing it to recycle capital and enhance returns.
• Agency Expansion (NewPoint): The recent strategic acquisition of NewPoint Real Estate Capital brings agency origination capabilities (Fannie Mae, Freddie Mac, FHA), which provides stable, long-term financing and fee income, enhancing income stability and book value growth.

Macroeconomic Impact on FBRT

As a commercial mREIT with floating-rate assets, FBRT is highly sensitive to the macro environment:

• Rising Interest Rates (Near-Term Tailwind/Long-Term Risk): The high-interest rate environment has been a near-term tailwind for revenue, as the interest earned on its floating-rate loans resets higher, outpacing the cost of its floating-rate debt and driving NII growth. However, persistently high rates increase the risk of borrower distress and property value declines, which is the main credit risk.
• CRE Stress (The Central Risk): The broad stress in the CRE market (especially for office and certain retail properties) presents a significant risk. FBRT mitigates this by focusing heavily on the resilient multifamily sector (74% of portfolio), which has strong fundamentals due to housing demand.
• Acquisition Capital: The ability to execute large CRE CLO transactions, such as the recent $1.076 billion CLO pricing in September 2025, shows the capital markets remain open and supportive of FBRT's high-quality lending platform.

Recent Performance and Corporate Developments 📈

FBRT's Q2 2025 results show strong operational execution and strategic progress despite some bottom-line pressure.

Q2 2025 Financial Highlights: 💰

• Distributable Earnings Miss: The company reported Distributable Earnings (DE) of $0.27 per diluted share, missing the consensus estimate of $0.30. This was mainly due to lower-than-anticipated originations (ahead of a key acquisition) and higher interest expenses.
• Balance Sheet Strength: Book Value per share remained solid at $14.82, significantly above the current stock price.
• Credit Quality: The portfolio maintains a strong credit profile, with watch list loans representing only 5% of the total portfolio and a low average risk rating.
• Loan Repayments/Recycling: FBRT received $317 million in loan repayments during the quarter, providing fresh capital to redeploy into new, higher-yielding loans.

Strategic Initiatives and Corporate Developments: 🤝

• NewPoint Acquisition Closing: The acquisition of NewPoint Holdings JV LLC closed subsequent to the quarter, on July 1, 2025. This deal is transformational, adding a significant agency/FHA origination platform that is expected to be accretive to GAAP earnings in the first half of 2026 and to Distributable Earnings in the second half of 2026.
• Major CLO Pricing: In September 2025, FBRT priced a $1.076 billion CRE CLO (BSPRT 2025-FL12). This complex transaction, combined with other financing activities, is expected to generate $250 million in cash and reduce financing costs on its financed assets by approximately 65 basis points, leading to a projected incremental quarterly DE benefit of $0.05 to $0.07 per share. This significant transaction is a major catalyst for improving dividend coverage.
• Dividend Declaration: FBRT declared a $0.355 per share common stock dividend for Q3 2025, maintaining its current quarterly payout.

Dividend Analysis and Fair Value 🎯

Dividend Analysis

• Current Dividend: Quarterly dividend of $0.355 per share (Annualized: $1.42).
• Current Yield: This translates to a high yield of approximately 13.0%.
• Coverage: The Q2 2025 Distributable Earnings of $0.27 per share did not fully cover the $0.355 dividend. However, the company is maintaining the dividend, projecting that the benefits from the CRE CLO pricing and the NewPoint acquisition (expected to add $0.05–$0.07 per share) will close this coverage gap in the near term. The management "sees a clear path to dividend coverage," relying on these recent strategic moves.

Fair Value and Price

• Fair Value Metric: Comparing the current stock price to the Book Value is key.
  • Closing Price is near $10.90 (as of October 2025).
  • GAAP Book Value per share is $14.82.
  • P/B Ratio: $14.82$10.90​≈0.74
• Conclusion: Trading at roughly 74% of its Book Value, the stock is significantly undervalued. This discount reflects market uncertainty over the CRE environment and skepticism regarding the company’s ability to fully cover its dividend. This valuation suggests a strong capital appreciation opportunity if the company executes its growth strategy.

Analyst Estimates and Ratings

• Consensus Rating: The consensus rating from analysts is a strong "Buy" (50% Strong Buy, 50% Buy), satisfying the requirement for receiving most analyst buy ratings in the last 30 days. Analysts are clearly factoring in the positive impact of the NewPoint acquisition and the major CRE CLO pricing.
• Price Target: The average 12-month price target is approximately $14.75, implying a massive potential upside of over 35% from the current share price. This target is nearly equal to the current Book Value, suggesting analysts expect the stock to trade at par with its net asset value once the earnings-accretive initiatives take full effect.

Investor-Focused Takeaway: Is FBRT Right for Your Portfolio?

FBRT is a powerful "Buy and Hold" candidate for income investors looking to gain exposure to the most resilient part of the CRE debt market (multifamily) at a significant discount. The company is actively executing a strategy to increase earnings power, which is supported by two major, recent catalysts: the NewPoint acquisition and the $1.076 billion CRE CLO transaction.

What to Watch in the Near Term: 📈

• Dividend Coverage Confirmation: Monitor the Q3 and Q4 2025 Distributable Earnings reports to see if the forecasted $0.05–$0.07 per share benefit is realized, successfully closing the dividend coverage gap.
• NewPoint Integration: Track the progress and reported accretion from the NewPoint agency lending platform in late 2025 and 2026.
• Credit Quality: Watch the company's risk rating and delinquency metrics for its CRE loan portfolio.

Recommendation:

FBRT is a Strong Buy for long-term investors. The stock is deeply discounted (trading at 74% of Book Value) while offering a high dividend yield that is expected to become fully covered by Distributable Earnings as the benefits of the recent strategic transactions flow through. The high consensus price target of $14.75 suggests significant capital appreciation is available as the market gains confidence in its earnings stability and asset quality.

A Final Word on Your Investment Decision

Angel Oak Mortgage REIT (AOMR) and Franklin BSP Realty Trust (FBRT) offer two differentiated, high-yield income plays in the mortgage REIT space—one specialized in residential Non-QM loans, the other focused on floating-rate commercial real estate debt. Both trade at meaningful discounts to book value and yield over 13%, but their risks, catalysts, and income profiles diverge, offering income investors distinct pathways based on risk appetite and rate outlook.

Angel Oak Mortgage REIT (AOMR) – Non-QM Residential Income With Upside Optionality
✔ 13.6% dividend yield backed by a strong origination and securitization engine
✔ Conservative balance sheet (recourse debt-to-equity just 1.1x) reduces refinancing risk
✔ Tied to parent firm potentially gaining Brookfield backing—adds strategic strength
➤ Best for: Yield-focused investors betting on stable-to-lower interest rates, and those seeking exposure to the resilient Non-QM mortgage segment with upside from securitization efficiency

Franklin BSP Realty Trust (FBRT) – Multifamily-Centric CRE REIT With CLO-Driven Upside
✔ 13.0% dividend yield supported by a $1.076B CRE CLO expected to boost DE per share
✔ Trading at just 74% of Book Value despite strong credit profile and strategic expansion
✔ Acquisition of NewPoint adds fee income, government lending capabilities, and growth visibility into 2026
➤ Best for: Long-term income investors seeking a discounted entry into multifamily CRE credit, with high conviction in dividend sustainability and capital appreciation

Investor Insight:

🏠 Looking for resilient housing-backed yield with structured credit support? → Angel Oak Mortgage REIT (AOMR)​
🏢 Prefer discounted commercial real estate exposure with catalysts in motion? → Franklin BSP Realty Trust (FBRT)

Both REITs offer compelling entry points at a time when macro uncertainty is creating rare dislocations between income generation and valuation. AOMR delivers income with a Non-QM focus and securitization muscle, while FBRT offers recovery-driven upside from CLO execution and agency lending expansion.

We’ll be back with our next report soon, bringing you fresh insights on the market and new opportunities to watch. In the meantime, we’d love to hear from you—let us know how you found this report, what niche sectors you’d like us to cover next, and don’t forget to share your top stock holdings with us. Your feedback helps us deliver reports that matter most to your investing journey.

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Happy Trading
​— Team Premium Stock Alerts