Granite Point Or Sachem Capital: I Went With Sachem's 11% Yielding A Preferreds

The article compares mortgage REITs Granite Point Mortgage Trust (GPMT) and Sachem Capital (SACH), noting both trade at significant discounts to book value and have preferred shares below liquidation value, presenting potential investment opportunities. While GPMT is larger with a commercial real estate portfolio, SACH focuses on short-term residential development loans and offers a substantially higher common dividend yield (19% vs. GPMT's 6.7%). The analysis highlights Sachem Capital's 7.75% Series A Preferreds (SACH.PR.A), yielding 11.17% and trading at a 30% discount, as a potentially more attractive, albeit risky, play due to its higher discount, liquidity, and greater upside potential from anticipated Fed rate cuts compared to GPMT's preferreds.

Analysis

A comparative analysis of mortgage REITs Granite Point Mortgage Trust (GPMT) and Sachem Capital (SACH) reveals a significant divergence in risk profile and investment appeal, despite both trading at substantial discounts to book value. GPMT, the larger entity with a $1.82 billion commercial real estate portfolio, exhibits signs of heightened credit stress, including a 43.9% concentration in office properties, a high 8.1% allowance for credit losses, and a 131% sequential jump in real estate owned (REO) to $98.7 million. In contrast, the smaller SACH, which focuses on short-term residential development loans, demonstrates a more stable credit profile with a lower CECL of 4.62% and flat REO. Furthermore, SACH maintains a superior liquidity position, with cash representing 18.8% of its loans held for investment versus just 5.26% for GPMT, and generated positive operating cash flow of $500,000 in Q2 compared to GPMT's negative $710,000. This fundamental disparity is reflected in their preferred securities; SACH's 7.75% Series A Preferreds (SACH.PR.A) offer a higher 11.17% yield at a 30% discount to liquidation value, while GPMT's 7.00% Series A Preferreds (GPMT.PR.A) yield 8.6% and feature a future floating-rate coupon that could decline with anticipated Fed rate cuts.

Key Decisions for Investors

• Investors should prioritize the preferred shares of both GPMT and SACH over their common stock, as the common dividends appear unsustainable given negative EPS and operational cash flow challenges highlighted in the analysis.
• Sachem Capital's Series A preferreds (SACH.PR.A) may represent a more compelling high-yield opportunity due to its higher 11.17% yield, deeper discount to liquidation value, and the company's stronger liquidity position relative to Granite Point's preferreds.
• Given the speculative nature of these microcap mREITs, it is critical to monitor credit quality metrics, particularly GPMT's rising REO balance and SACH's loan portfolio performance, as any deterioration could jeopardize payments on these securities.
• Be cautious of GPMT's preferreds (GPMT.PR.A) as their yield is set to float in late 2025, potentially decreasing if the Federal Reserve proceeds with anticipated rate cuts, which would diminish future returns compared to a fixed-rate security.