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Many times, successful stock market performance is just as much about when you buy as it is about what you buy. Certain market conditions such as rising interest rates, may exist that can hamper the performance of a sector, such as real estate investment trusts (REITs). Eventually, conditions change, and stocks can be purchased at bargain prices.
But there are times when individual stocks may decline because of poor earnings, weak forward guidance, analyst downgrades, dividend cuts or negative publicity about a product or service. Stocks are likely to continue to lag the market under those conditions.
As investors, it’s important to assess the reasons behind the falling share price to determine if the market has overreacted and a rebound is likely, or if the stock is heading for further declines.
Let’s take a look at three REITs with large recent declines. Are they worth buying at these levels or could there be more pain ahead for shareholders?
Creative Media & Community Trust Corp (NASDAQ:CMCT) is a Dallas, TX-based Office REIT that focuses on acquiring, operating and developing premier office, hotel and multifamily residential properties in fast-growing communities. Its total portfolio is 13 class A offices, three class A multifamily properties and one hotel. Many of its properties are located in Texas and California. CIM owns 45.7% of Creative Media & Community and externally manages it.
Creative Media was the third best-performing REIT during March, but shares have dropped more than 30% from $4.39 on April 1 to a recent low of $2.98.
On March 27, Creative Media reported its fourth-quarter operating results. FFO of $ (0.72) per share, missed the estimate of $ (0.48) by 50% and was 84.62% below the Q4 2022 FFO of $ (0.39) per share. Revenue of $29.47 million missed the estimate of $30.20 million but was a 13.92% increase over revenue of $25.87 million in Q4 2022.
Despite the poor results, Creative Media did not immediately sell off on the news and secured a total gain of 18.33% for March.
The only recent news on Creative Media was that on April 8, the Board of Directors declared stock dividends for its preferred Series A, A1 and D shares.
There has also been no recent analyst news on the stock. So, why has Creative Media declined so much during the last six weeks?
One main reason may be that the stock was extremely overbought at the beginning of April, having run up so much in March. When the earnings report didn’t beat expectations, investors may have decided this was the time to take profits.
Creative Media will announce its first quarter earnings after the closing bell on May 15. Investors are advised to wait for that report before buying or selling shares. A much better quarter with Creative Media being so oversold could have a huge impact on the upside but it’s possible that Wall Street investors were anticipating another earnings miss. If earnings are poor again, this REIT may not see any upside for many months.
Hudson Pacific Properties Inc (NYSE:HPP) is a Los Angeles, CA-based office REIT with 41 office properties and three motion picture studio properties, emphasizing centers of innovation for media and tech companies in California, Washington state and Vancouver, B.C. Its Q1 office occupancy rate was 79.0%, down from 80.8% in the previous quarter.
Hudson’s share price was hit hard in 2023 because of rising interest rates, a decline in office occupancy and the actor and screenwriter guild strikes. However, once the strikes ended, shares more than doubled between November and January. On Jan. 2, Hudson peaked at $9.87. Since then, it’s been all downhill and Hudson recently closed at $4.83.
Interestingly, Jan. 2 was also the day that Jefferies analyst, Peter Abramowitz, upgraded Hudson from Hold to Buy and raised the price target from $6 to $12. Two days later, analyst John Kim of BMO Capital maintained Hudson at Outperform and raised the price target from $12 to $13.
On Feb. 12, Hudson Pacific Properties reported its fourth-quarter operating results. FFO of $0.14 missed the consensus estimate of $0.15 and was well below FFO in Q4 2022 of $0.49 per share. Revenue of $223.42 million also missed the consensus estimate of $223.93 million and was 17.2% lower than revenue of $269.93 million in Q4 2022.
Hudson’s first quarter earnings were not much better. On May 1, Hudson announced GAAP EPS of $0.17 per share, which met the consensus estimate. However, that was a 51.43% decline from Q1 2023. In addition, revenue of $214.023 million missed the consensus estimate of $214.776 million and was 15.16% below revenue from Q1 2023 of $252.263 million.
Adding fuel to the fire, Q2 2024 FFO guidance of $0.15-$0.19 was below the $0.22 consensus estimate.
Over the past two weeks, analysts from Piper Sandler and Goldman Sachs have lowered price targets on Hudson from $9 to $7 and B. Riley Securities has lowered the price target from $10 to $9.
Hudson shares have rebounded slightly from extremely oversold positions over the past few days, but there’s little impetus for Hudson Pacific to appreciate going forward.
Service Properties Trust (NASDAQ:SVC) is a Newton, MA-based diversified REIT with a portfolio of 220 hotels and 749 service-focused net lease retail outlets that cover 46 states, Puerto Rico and Canada. Service Properties owns many of the travel centers along major U.S. highways. Service Properties is also externally managed by the RMR Group.
Like Hudson Properties, Service Properties’ share price peaked just before New Year’s and has declined substantially since then. Year-to-date it has a total return of -27.99%.
The culprit again was weaker earnings. In February, Service Properties reported a fourth-quarter 2023 FFO of $0.31 per share, missing estimates of $0.36 per share and almost 30% below its FFO of $0.44 per share in Q4 2022. Revenue was about 4% above the projection but a decrease of 2.45% from its revenue in Q4 2022.
On May 7, Service Properties Trust reported Q1 2024 FFO of $0.13 per share, missing the estimate of $0.19 per share and 43.48% below its FFO of $0.23 per share in Q1 2023. Fortunately, revenue of $436.250 million was ahead of the consensus estimate of $427.755 million and topped its revenue of $429.209 million in Q1 2023.
Like Hudson Properties, Service Properties is trying to rally from an oversold position. Aside from a dividend yield of just below 14%, there is no reason for investors to get excited about Service Properties.
Consider These Higher-Yielding Real Estate Investments
While REITs tend to offer more stability than most other sectors, they’re still not immune to the market’s wild fluctuations. One way to add greater stability to your portfolio is with high-yield alternative investments. Two such options are the Ascent Income Fund and Basecamp Alpine Notes from EquityMultiple.
The Ascent Income Fund targets stable income from senior commercial real estate debt positions, offering a compelling yield backed by real assets. With a historical distribution yield of 12.1%, payment priority, and flexible liquidity options, the Ascent Income Fund is a cornerstone investment vehicle for income-focused investors. For a limited time, first-time investors with EquityMultiple can invest in the Ascent Income Fund with a reduced minimum of just $5,000.
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This article These 3 REITs Have Crashed: Are They Now Worth Buying? originally appeared on Benzinga.com
Source: finance.yahoo.com