The Ground Up Ep 2 -2 High Yielding REITs

Finance-focused summary (Mortgage REITs / mortgage-rate credit businesses)

The presenter argues that many investors misread mortgage-related REITs because they are often credit/loan businesses, not true “bond substitutes” or equity REITs that own hard assets generating rent.

Key risk theme: leverage amplifies downside

• Example: A $100 asset financed with $80 debt / $20 equity
• If the asset value falls 10% to $90:
  • Debt effectively becomes $80
  • Equity becomes $10 (down from $20)
  • That is a -50% decline in equity, showing how leveraged mortgage/credit structures can swing more than unlevered equity REITs.

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Framework: questions to evaluate mortgage lenders (step-by-step)

1) Identify what the entity actually owns/does

• Equity REIT: owns properties generating rental income
• Mortgage REIT / mortgage lender: owns loans and earns interest, not rent

2) Review credit underwriting

Consider:

• Who is the borrower?
• How much equity does the borrower contribute?
• What is the loan-to-value (LTV)?
• Is the property’s cash flow sufficient to support the loan?
• How conservative was management during underwriting?

3) Focus on the balance sheet

Assess:

• Unencumbered assets
• Funding model
• Leverage
• Credit ratings

The presenter also cautions that you should not treat dividend yield as “value,” since dividend cuts (or disappearances) can occur when coverage weakens—especially in mortgage/levered structures.

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Disclosures / cautionary stance

• Notes past performance and mentions turnaround risk.
• Explicit warning: mortgage rates can see dividend disappearances when investors chase yield while ignoring leverage.
• No explicit “not financial advice” disclaimer appears in the subtitles, though the content is framed as personal calls (e.g., “strong buy”).

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Company-by-company details and key numbers

Blackstone Mortgage Trust (Ticker: BXMT) — discussed, but not recommended

Presenter disclosure

• Says: “I love Blackstone… (ticker BX)”
• But does not own BXMT

Performance / coverage

• Distributable earnings: 48 cents/share
• Dividend: 47 cents/share
• Coverage described as “covered,” but only by one penny (a tight buffer)

Balance sheet / risk actions

• Book value declined
• Management increased expected credit loss reserves
• Reason: continued work on legacy office loans

Mitigation actions praised

• Selling loans
• Reducing office exposure
• Shrinking loans
• Expanding into residential development and net lease

Conclusion

• Presenter wants:
  • Stronger dividend coverage
  • Stabilization in book value
  • Further office exposure reductions
• Only then would BXMT be a better opportunity

Tickers mentioned: BXMT, BX

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Ladder Capital (Ticker: LDR) — “Strong buy #1”

Performance history

• On April 7, 2020: recommended Ladder around $410/share
• Since then: well over 240% total returns (also later referenced as ~250%)

Business model (“three-cylinder” diversification)

1. Commercial loans
2. Investment grade securities
3. Directly owned real estate

Balance sheet / risk metrics

• 73% of assets are unencumbered
• Assets described as mainly:
  • first mortgages
  • investment grade securities
  • unrestricted cash
• Modest leverage
• Mostly unsecured funding
• Ratings: Moody’s and Fitch investment grade; S&P outlook upgraded to positive

Strategic rationale

• During COVID, the market feared bankruptcy; presenter believed it was unlikely due to the liquidity/funding profile/balance sheet.

Guidance / roadmap

• “Earnings growth equals dividend growth.”
• Shift capital toward higher-return commercial loans
• Monetize lower-return assets to improve returns without materially increasing risk

Valuation / income metrics

• Trading around 10.5× earnings
• Dividend yield nearly 10%
• Wall Street expectation for meaningful earnings growth next year

Recommendation

• “Attractively priced” with “excellent upside” → strong buy

Tickers mentioned: LDR Key numbers: ~$410/share (4/7/2020); ~240% / ~250% total returns; 73% unencumbered assets; 10.5× earnings; ~10% dividend yield; “meaningful earnings growth next year”

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Milrose Properties (Ticker: MRP) — “Strong buy #2”

Structure / category

• Not framed as a residential mortgage rate or commercial mortgage rate play
• Described as a land banking model
• “Capital partner for America’s homebuilders”

How it works

• Buys and develops residential land
• Uses long-term option agreements letting builders purchase home sites over time

Scale / exposure

• Controls 140,000+ home sites across 94 communities in 30 states
• Implies ~$16 billion of “future homesite takedowns” embedded in the existing portfolio

Diversification

• Became public in 2025
• Origin: LAR spin-off
• Management adding relationships with other national homebuilders to reduce concentration

Housing / macro thesis

• Long-term housing shortage; every home begins with land

Valuation / income expectations

• Stock yields around 10%
• Analysts expect “healthy earnings growth” over the next several years

Recommendation logic

• Combination of:
  • high current income
  • growing earnings
  • unique business model
• Framed as a potential “premier land finance platform”
• Reinforces: “don’t chase the highest yield” and prioritize moat/balance sheet/management discipline

Tickers mentioned: MRP Key numbers: 140,000+ home sites, 94 communities, 30 states, ~$16B future takedowns; ~10% yield; created/public in 2025; earnings growth expected “next several years”

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Overall takeaways / explicit recommendations

• Core message:
  • Don’t chase double-digit mortgage/credit yields blindly.
  • Credit cycles and leverage matter.
  • Mortgage-related REITs can lose capital when dividends disappear.

Explicit “Strong buy” favorites

1. Ladder Capital (LDR) — strong balance sheet focus, diversified earnings (“three-cylinder”), attractive valuation (~10.5× earnings) and ~10% yield.
2. Milrose Properties (MRP) — land banking/options model tied to homebuilding demand, ~10% yield, expected multi-year earnings growth, and a large embedded takedown pipeline (~$16B).

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Presenters / sources

• Presenter: Brad Thomas
• Other referenced entities (not presenters): Blackstone (BX) / Blackstone Mortgage Trust (BXMT), Ladder Capital (LDR), Milrose Properties (MRP)