3 REITs That Could Be Heading Six-Feet Under
BankRate recently noted that home prices in the U.S. continue to rise due to a persistent lack of housing supply, even amidst some of the highest mortgage rates seen in the last two decades. This ongoing price increase is driven by low inventory levels and robust demand, which outpaces the supply. Also, the article noted that The National Association of Realtors (NAR) reported a 4.8% increase in median existing-home prices year-over-year (YOY) as of March. This marks several consecutive months of price increases. Despite these bullish signs, there are still some REITs to sell for April.
A large part of the issue with these companies is largely mismanagement of cash flow. For investors, chasing high dividend yields often leads to long-term capital depreciation. And some of the most speculative companies pay the highest yields.
These REITs represent companies that have unfavorable risk to reward ratios and should be avoided.
Office Properties Income Trust (OPI)
Office Properties Income Trust (NASDAQ:OPI) has seen a substantial reduction in its dividend payouts, which has been followed by a significant decline in its stock price. The company slashed its quarterly dividend from $0.55 to $0.01 per share within a year.
For Q1 of 2024, OPI issued an earnings per share (EPS) guidance of $0.79 to $0.81, which is below the consensus estimate of $0.97. This forecast indicates a cautious outlook for the near term. Also, OPI’s stock performance has seen a significant decline in 2024. Share price is decreasing by 73.5% to $2 from the beginning of the year.
In recent financial activities, OPI has engaged in restructuring its debt. This includes the issuance of $300 million in senior secured notes. And it is amending its secured credit facilities to enhance liquidity. But this may not be enough to improve its risk profile. It has $2.57 billion worth of debt, equating to -$52.22 per share.
Medical Properties Trust (MPW)
Also, Medical Properties Trust (NYSE:MPW) has faced severe challenges, with its stock price plummeting notably in recent times. This REIT’s stock price has fallen 42.50% over the past year.
Analysts’ estimates for both EPS and revenue have been adjusted, reflecting changing business trends. MPW is trading a discount compared to its industry peers based on its Forward P/E ratio.
However, this discount could be chalked up to a significant amount of risk for investors as well, which makes it dubious for investors to hold in their portfolios.
MPW has over $10 billion in debt, and just $250 million in cash. And while it yields an unsustainable 13.16% for its dividend, its dividend growth rate has cratered over 30% over the past year.
I don’t think that MPW represents good value for money. Furthermore, its enormous amount of debt makes its continued existence questionable.
Veris Residential (VRE)
Veris Residential (NYSE:VRE) is focusing on optimizing its operations as a pure-play multifamily REIT. Despite potential opportunities for value creation, the broader challenges in the REIT market, including high interest rates, draw a question mark around its ability to stay relevant in today’s market.
Like other REITs, VRE has been struggling, with its stock price falling 36.14% over the past five years.
Most recently, VRE disclosed its first-quarter 2024 results, revealing earnings per share of 14 cents. It surpasses the analyst consensus of 11 cents per share. However, the company’s reported revenue stood at $67.34 million. This marks a 7.14% shortfall compared to the anticipated revenue of $72.52 million, as per analyst estimates.
Adding to the worries for VRE, its EPS is not expected to be positive in the near future. Also, its AFFO isn’t the best either when compared with its peers.
Investors should then consider if VRE can support their financial goals and objectives.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
