My only REIT owned in 2022 was owning some OHI for about 3 months.
As of earlier this morning (Dec 29, 2022) SPY (S&P 500) was down 19.7% over one year.
Sector returns for the 11 S&P 500 sectors over one year were:
So REITs had a bad 2022. Are there bargains in the REIT sector? A few or many?
I am beginning to look at a couple of beaten down REITs, MAA & MPW.
MAA is down 31.5% over one year, from a pretty lofty starting price. MPW is down 52.1% over a year.
MPW’s revenues have been up each year over the last four years rising from $705 million in 2017to $1.545 Billion in 2021. Over that its share count has increased from 364 million shares in 2017 to 599 million today. Revenues was down in 3Q2022, but its revenues are up 1-2% ttm. MPW has a large amount of properties in Europe. This adds complexity to any analysis, but perhaps opportunities as well. The 3Q22 revenue drop appears at least partially the result of selling some properties and currency translation losses due to a strong USD, which has weakened a little recently. They also has a contract to sell some properties in early 2023. The proceeds are being used to reduce debt, but I suspect may weaken dividend coverage as well, although contract rent increases may help with the dividend somewhat. With the foreign properties and property sales, this is a complex one for me to evaluate.
MAA - I have owned MAA in the past, but its been just over a decade since I owned it. Its revenues have been steadily rising while maintaining a pretty flat asset base, debt levels and share count. Will rent increases continue? Will current rent levels hold? I believe those are the most important questions.
Thoughts? Other undervalued REITs that you like?
A long time ago I used to have a few REITS but I’ve been out of that game for too long to know anything useful. For the moment I put it into the “too hard” pile, especially considering the fundamental changes going on in real estate and society right now.
Works From Home is upending a lot of landlords, a possible recession may impact real estate more severely than other sectors, and… well… too hard.
Interesting piece the other day:
I own MPW, too, and consider it to be one of my riskier REITs primarily because their largest hospital operation tenant, Steward Health Care, has been in financial distress. But that may be a thing of the past with Steward’s completion of a credit extension with its creditors. Still, MPW has a heavy short interest which is unusual for a REIT. But there is no indication that the dividend is in jeopardy and the dividend-to-FFO ratio is at 54%. Here is a recent Motley Fool article making the bull case for MPW:
I don’t know anything about MAA. I own no apartment REITs for no apparent reason other than they have been pricey until 2022.
I’ll post separately on my other REIT holdings many of which I have owned since, or shortly after, the Great Financial Crisis of 2008 - 2009, so my cost basis is quite low on those.
SLG is another of my riskier REITs that holds Class A office buildings in Manhattan. It is dirt cheap and it just reduced its dividend. But, it trades far below management’s NAV estimate of $99.00, and below Morningstar’s fair value estimate of around $59.00.
The reduced annual dividend of $3.25 is paid monthly and yields 9.6% based on Friday’s stock closing price. Management reduced the dividend in order to free up more cash flow to pay down debt to reduce the financial impact of higher interest rates, which I consider to be a prudent, if disappointing, move on their part. The dividend is well covered by FFO/AFFO.
There is a lot of negative sentiment in the market towards office REITs especially those in NYC. But SLG’s leasing operations have remained robust. I’m optimistic based on what I have read and heard from management’s earnings reports and conference calls.
Here’s a good value triple net REIT for you to consider: WPC.
At Friday’s closing price the dividend yield is 5.4%. The payout ratio to FFO is about 80% but the diversified nature of its business along with its near Dividend Aristocrat status is reassuring. It’s track record is marvelous–it has increased its dividend for 24 consecutive years–every year since it went public 24 years ago–even during the Great Financial Crisis and the the Covid bear market of 2020 and the 2022 bear market.
It owns almost 1400 commercial properties with about 30% of those are in Europe. 50% of the properties are industrial, warehouse and self-storage, 20% are office, 16% are retail and 9% are spread among education facilities, hotels, lab space and even funeral homes. About 80% of its acquisition volume in 2022 has been allocated to the industrial space. The office space is mostly leased to government tenants.
No single tenant accounts for more than 3% of the rent roll. The average lease term is about 11 years.
About 60% of its leases have rent escalations tied to the CPI so inflation is WPC’s friend. ;->
But what I really like about its long-term management profile is how WPC has successfully navigated the bear markets since it went public in 1998. Not only have they never missed a dividend payment but they have increased it every single year since 1998. No small feat.
I own a lot of shares in my retirement account with a cost basis of $75.03 and a dividend yield on cost at 5.6%.
I bought some MAA & MPW. Sold half of the MAA at a nice 10-15% gain and have since lost 90% of the previous gain. Just bought the MPW and I am down 2-3% in a few days.
I am not sure about offices or SLG. It has been a while since I owned any apartments and the last time that I did the industry was in much better shape.
I have own OHI and similar REITs (when there used to be more of them) and I understand the business metrics better. Just not sure how to measure any recovering in offices.
A couple that I have been looking at are BDN and LXP. BDN hit a multi-year low this morning. It operates in 3 markets Philly, DC & Austin with over 70% in Philly. It has a variety of property types, but that includes a lot of offices. Bankruptcy seems unlikely, but a dividend cut seems quite possible. Might buy after any dividend cut.
LXP used to have lots of offices, but has transitioned to industrial. Still doing research on it.
Also looking at OHI, but would like either a cheaper price or some recovery in the nursing home industry.
At present it seems a buyer’s market to me.
@Valuemongeragain–I agree with you about it being a buyer’s market. REITs have been in a downward spiral for all of 2022. And there is a lot of skepticism about REITs so far in 2023 especially for office REITs.
That said, I find that sentiment to be motivating to buy into REITs that have excellent, time-tested managements.
I recently invested in shares in another class A office REIT that is focused primarily, but not exclusively, on the West coast–KRC. Their debt ratio is low, almost extremely low for a REIT, and their dividend to FFO ratio is around 50%, which is also really low for a REIT. Check them out.
KRC does have a stellar balance sheet and dividend coverage. They are predicting a 3-5% decline in occupancy, but that is expected during recessions - assuming we have one which we probably will.
With a more than 50% share price decline, some future operating issues are priced in.
Their supplemental income statement for 4Q2022 lists their top 15 tenants. First time looking at an office REIT to this extent, the shopping center REITs always listed at a minimum their top 25 tenants with their credit ratings. Sorry that such detail was not included in KRC’s supplemental, but so far everything is looking pretty good
Thanks for bringing KRC to my attention.
Thanks for your comments on KRC, VM!
Bought 1,000 shares of KIM, 600 shares of KRC and 1500 shares of MPW this morning.
Bought 2,000 shares of BDN. So far all of my recent REIT purchases are slightly underwater, negative 0-2%. Done better in banks where I am up 7% to 143%. Just a little more risk with the banks though!!!
Almost all of my recent REIT purchases (within the last 12 to 18 months) are underwater but that doesn’t bother me (too much). It’s to be expected when investing in REITs on sale during any financial downturn. All of my investments during and shortly after the great recession back in 2008 were difficult but all have remained in positive territory by a lot. I expect the same results with my recent new REIT investments: ABR, ARE, EPR, GOOD, KRC, and MPW. MPW bothers me the most because the dividend yield is so high suggesting that Mr. Market is expecting a dividend reduction, and the shorts are weighing heavily on it.
Last week TMF Matt Argersinger of the Real Estate Winners premium service spoke on the free Motley Fool Money podcast about REITs:
Matt’s REIT discussion starts at 4:25 and ends around 8:00.
I was talking to a guy on Seekingalpha who worked for a company that had a lot of hospitals. He seemed to know what he was talking about and he said they were looking to fill over 1000 nursing positions and they could not fill 100 beds because of that. I do not know but 1000 nurses seems like quite alot.
The conversation came up while we were discussing BXP and all the problems they might have getting people back to the offices.
An article in a yesterday’s WSJ said that the nurses are coming back to hospitals as the high-paying short-term nursing jobs are disappearing/paying less:
[Nurses Flock Back to Hospitals After Leaving in the Pandemic - WSJ](Nurses Flock Back to Hospitals After Leaving in the Pandemic - WSJ
Thank you Murph that is very helpful.
Happy to be of help, Andy!
Great week for a lot of value REITs, in fact it has been pretty great for them since June 1st.
MPW is up
A lot of good news back in May (Steward selling its Utah properties and Progressive receiving a large 3rd party loan, its upcoming sales of its CT properties, the Australian sales), but initially the stock price didn’t move much, but sure has done well since start of June.
Brandywine, my largest REIT holding, is up 26% since June 1, but on no real news. It reported pretty good, but that was back in mid April. It was of course the cheapest of those that I bought by most metrics.
KIM is up about 11%. Never really understood why it dropped below $20. Since buying it, they reported their 1Q23 occupancy inched up to 95.8% from 95.7% at 4Q22. Bed Bath and Beyond (BBBY) finally took bankruptcy. Not that surprising and not that big of a deal. BBBY paid 0.6% of KIM ABR, but occupied 1.0% of its GLA, so longer term BBBY’s bankruptcy may have a positive.
Finally, I bought KRC. It has gone up 13%. David suggested it to me after I expressed concern about another of his recommendations SLG being too risky. SLG is up 33% since June 1st. It rose 20-25% over a couple of days in late June after announcing a sale. Seemed to me that the news did not merit such a share increase, but the market did.
Two questions to the board.
First - Thinking about taking a little off the table on these REITs. Most likely would be partial sales of MPW or BDN, but might incude KIM, KRC or MAA. Wouldn’t mind having a little cash available should there be any sell off in the Sept to Oct timeframe which is a time that such sell offs often occur.
Second - Any of you having problems posting on this board. I tried to post this as a new topic, but it wouldn’t let me saying I was not authorized to start a new topic. Any of you having similar problems.
Good to hear from you.
I’m staying put with my KIM and KRC shares. I have held KIM for over 10 years and have an excellent cost basis and yield on cost. KRC is relatively new holding for me as I swapped out SLG for KRC. So far, KRC has remained in the red for me but the dividend seems stable and unthreatened. I like KRC’s management and the direction they are taking in the face of the office REIT headwinds. I also like the low debt and low dividend to FFO ratios.
As to your second question, I have not had any problems posting on this board.
By the way, I recently added SPG and VICI to my portfolio and both have done well for me. ARE is still in the red for me primarily because of the negative influence of Jonathan LItt’s short hit piece on ARE. But so far I am not impressed with Litt’s thesis on ARE.
Well today and the last couple of days earlier, show that market volatility is alive and well.
Kind of amazing how good economic news can be so bad for the stock market. I guess higher interest rates are perceived to be more important than economic growth and financial stability.
We both own MPW, I still am under water on my $10.17 pre-SVB blowup purchase. All my other REIT purchases, mostly since SVB’s demise, are in the black.