kazuma seki
Mortgage REITs have dipped in the last few weeks relative to the broad market as borrowing rates on a conventional mortgage have risen to 6.88%, according to Mortgage News Daily, as of Wednesday afternoon. One name in the industry reported a decent Q4 with solid book value per share metrics, and I see more upside ahead following two straight better-than-forecast quarters and improving technicals.
Stockcharts.com
According to Bank of America Global Research, BrightSpire Capital (NYSE:BRSP) is an internally managed commercial real estate mortgage REIT that focuses on originating, acquiring, financing, and managing a portfolio of predominantly US-based CRE debt investments and net leased properties. CRE debt investments are primarily first mortgage loans. BRSP may selectively originate mezzanine loans and preferred equity investments, often in conjunction with the origination of the corresponding first mortgages on the same properties.
The New York-based $912 million market cap Mortgage Real Estate Investment Trusts (REITs) industry company within the Financials sector trades at a low 7.8 trailing 12-month GAAP price-to-earnings ratio and pays a high 10.9% dividend yield, according to The Wall Street Journal.
This past Tuesday, BRSP reported a solid bottom-line beat with a stable undepreciated book value per share of $12.06. Its GAAP BVPS verified at $10.77. Liquidity was said to be a primary focus on the earnings call during this tough REIT and capital markets environment.
On valuation, analysts at BofA see earnings on this commercial real estate market name steadily rising in the next two years. EPS is seen climbing from $0.98 in 2022 to a normalized figure of around $1.06. The Bloomberg consensus forecast is about on par with what BofA sees, but what’s perhaps more important is what happens with BrightSpire’s dividend.
I think it will hold up given an improved portfolio with the firm with more diversification. That should lead to steadier operating results. What’s more, shares trade at low earnings multiples. Overall, BRSP’s price-to-book is about half that of the industry median, so it appears to be a solid value.
BofA Global Research
Looking ahead, corporate event data provided by Wall Street Horizon show an unconfirmed Q1 2023 earnings date of Wednesday, May 3 BMO. Before that, the company’s stock buyback program is slated to end, which is not ideal, but if we see improved operating conditions, I would not be surprised to see a new program announced later this year.
Wall Street Horizon
So here’s where my update really turns for the better. I was a sell on the stock last summer, a hold a few months ago, and I'm upgrading BRSP to a buy now. The difference is technical price action. Notice in the chart below that shares have put in a floor near $6. There was a bullish double-bottom formation from early October last year and early January this year. Moreover, the retest came on improved RSI momentum – a bullish divergence.
BrightSpire then rallied to its falling 200-day moving average before paring gains with a retreat to the 50-day. I would like to see a jump above the 200-day on volume, but I think long here with a stop under $6 is a solid risk/reward play. There could be some selling pressure in the $8 to $9 range looking further out.
Stockcharts.com
I continue to like BRSP’s valuation, and another solid quarter helps the bullish valuation case. Now, though, the technicals are shaping up much better. I’m upgrading BRSP stock to a buy.
