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Here’s Why Mortgage REITs Colony Credit and Arbor Realty Trust Were Soaring on Friday

By Matthew Frankel, CFP® – Updated May 8, 2020 at 3:01PM

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The two companies just reported earnings, and investors seem happy.

What happened

The stock market ended the week on a high note, with the Dow Jones Industrial Average and S&P 500 index higher by 1.5% and 1.3%, respectively, as of 2:30pm EDT on Friday.

Some mortgage real estate investment trusts (REITs) were doing far better than the broader market. Colony Credit Real Estate (CLNC -1.10%) and Arbor Realty Trust (ABR -0.69%) were higher by 15% and 10%, respectively. Both companies, which primarily originate and own commercial real estate loans, reported earnings on Thursday afternoon, and it's fair to say that investors liked what they saw.

High-rise apartment buildings.

Image source: Getty Images.

So what

The COVID-19 pandemic has been a roller coaster ride for mortgage REITs as wild swings in interest rates and turbulent changes in asset values have made double-digit moves in these stocks the new normal.

In a nutshell, the results reported by these two companies were significantly better than many investors had feared. Colony Credit Real Estate reported that it received 99% of April interest payments from borrowers and 95% of rent payments from its net-leased real estate portfolio. Arbor Realty Trust announced strong loan origination activity, 12% growth in its loan portfolio, and no material loan modifications. Of the $521 million loan portfolio, the company reported just $8.3 million in non-performing loans -- up from $3.5 million at the end of the year, but still pretty strong considering the environment. 

Now what

In short, both of these mortgage REITs showed investors that, so far, the effects of the pandemic have not been as bad as feared. While we're still a long way from being out of the woods, investors in Colony Credit Real Estate and Arbor Realty Trust are breathing a sigh of relief today, and that's what we're seeing reflected in the stock price.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Arbor Realty Trust, Inc. Stock Quote
Arbor Realty Trust, Inc.
$11.50 (-0.69%) $0.08
Colony Credit Real Estate, Inc. Stock Quote
Colony Credit Real Estate, Inc.
$6.31 (-1.10%) $0.07

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