6 Commercial Mortgage REITs With Huge Dividends Can Benefit From Rising Interest Rates

KKR Real Estate Finance Trust

This is a very well-known name across Wall Street, and it has outstanding upside potential and very deep pockets. KKR Real Estate Finance Trust (NASDAQ: KREF), a mortgage REIT, focuses primarily on originating and acquiring senior loans secured by CRE assets.

The company engages in the origination and purchase of credit investments related to CRE, including leveraged and unleveraged commercial mortgage loans and CMBS. The company has elected to be taxed as a REIT and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders.

The research report said, “We expect gradually increasing distributable earnings as KKR Real Estate Finance Trust benefits from higher rates and slightly higher portfolio leverage.”

Shareholders pocket an 8.34% distribution. Raymond James has set a $25 target price. That compares with the $23.25 consensus target and Friday’s close at $20.63.

Ladder Capital

This could be a home run for investors if the credit markets can remain stable. Ladder Capital Corp. (NYSE: LADR) is a diversified, fully integrated commercial lending and investment company, primarily engaged in sourcing, underwriting and origination for commercial loans for its own account and for sale into the secondary market.

Ladder invests opportunistically in commercial mortgage loans, CMBS and CRE, and it provides a full spectrum of asset management services. Ladder is internally managed and completed a REIT conversion in 2015.

Raymond James had this to say:

We believe LADR’s portfolio is more positively correlated to higher rates than peers, largely due to low pre-COVID loan exposure and benefits of ~$1.6 billion of fixed-rate unsecured debt. We also expect distributable earnings excluding gains to increase in 2022 and 2023 as portfolio returns benefit from increasing rates and higher leverage.

The current distribution is 6.93%. The price target at Raymond James is $14, which is higher than the consensus target. The shares closed on Thursday at $11.55.

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