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On Friday, JMP Securities released a comprehensive fourth-quarter earnings preview for the Commercial Mortgage REIT and Commercial Real Estate Finance sector. The report, which covers 22 of the 24 public companies in the sector, indicated a challenging environment due to rising market interest rates and dampened expectations for Federal Reserve rate cuts in 2025. According to InvestingPro data, the sector’s volatility remains high, with companies like ACR showing a beta of 2.07, indicating significant market sensitivity. Despite these challenges, many companies maintain strong financial health scores, suggesting resilience in the face of market pressures.
The 10-year U.S. Treasury yield saw a significant increase, rising 78 basis points to 4.58% at the end of 2024 from 3.80% on September 30, 2024. This uptick in yields created a challenging situation for commercial real estate property values. In contrast to regional bank stocks and large diversified financials, which experienced gains in the fourth quarter of the previous year, the Mortgage REIT universe and Property REITs faced declines. InvestingPro’s analysis shows that despite market pressures, some companies in the sector trade at attractive valuations, with Price/Book ratios as low as 0.29, suggesting potential opportunities for value investors.
According to JMP Securities, the Mortgage REIT index (REM) fell by 11.5% in the fourth quarter of 2024, while the Property REIT index (RMZ) dropped by 7.7%. In comparison, the regional bank index (KRE) and the large diversified financials index (XLF) saw increases of 6.7% and 6.5%, respectively, outperforming the S&P 500’s 2.5% gain for the same period.
For the full year of 2024, the REM ETF was the only one among the six tracked equity indices to register a decline, losing 11.0%. This was attributed to the market’s anticipation of less favorable interest rate movements in 2025. On the other hand, the XLF and the broader S&P 500 saw substantial gains of 28.4% and 23.8%, respectively, with regional banks also performing strongly, as evidenced by a 15.2% increase in the KRE. Despite a positive trend, the RMZ’s modest 3.8% gain for the year stood in stark contrast to the performance of the banks and the broader market.
In other recent news, ACRES Commercial Realty Corp has authorized an additional $5 million for its share repurchase program. This move allows the company to continue repurchasing its common and preferred stock, although the exact number of shares to be repurchased remains uncertain. In other developments, ACRES Commercial Realty reported its third-quarter financial results for 2024, revealing a net decrease in its loan portfolio and a dip in earnings available for distribution, but a slight increase in GAAP book value per share.
Simultaneously, InPoint Commercial Real Estate Income, Inc. announced significant changes in its executive leadership, appointing a new CEO and Chairman following the resignation of Mitchell A. Sabshon. Donald MacKinnon, currently a board member, will take on the role of Chairman, while Denise C. Kramer will step into the CEO position.
These recent developments highlight the ongoing changes and strategies within both companies. As InPoint Commercial Real Estate navigates its leadership transition, ACRES Commercial Realty Corp is focusing on improving its financial standing amid challenging market conditions. These updates indicate the companies’ strategic directions and potential future performance.
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