Many investors purchase stocks without much regard for how many shares of those stocks are being shorted or whether that amount is increasing or decreasing. However, the number of shares sold short to the total number of available shares for trading, or "short interest as a percentage of float," is important.
A high percentage of short interest reflects bearish sentiment about the stock. If the short interest percentage is in double digits, that's a red flag. Conversely, a small percentage of short interest would indicate bullishness. But even when short interest is high, if it's declining, that could indicate market sentiment is about to improve. As a stock price rises, short sellers often close out positions, leading to further upside.
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Take a look at three real estate investment trusts (REITs) that have been heavily shorted on price pullbacks but recently have shown a decrease in short interest and could be candidates for a price rebound:
Sun Communities Inc
Sun Communities Inc. SUI is a residential REIT based in Southfield, MI, that acquires, operates, and develops 296 manufactured home communities and 179 RV communities. Established in 1975, Sun Communities offers rentals and homes for sale, largely in 55-and-over communities. Its April 30 occupancy rate for its manufactured homes was 96.7%.
In recent news, on May 2, JMP Securities analyst Aaron Hecht reiterated a Market Outperform rating on Sun Communities and maintained a $150 price target. That's a potential 26.16% appreciation from its closing price of $118.89.
On June 18, Sun Communities reported it had 1.69 million shares sold short, an increase of 3.37% since its last report. However, on July 4, Sun Communities reported 1.51 million shares sold short, a decrease of 11.41% since June. The number of days it would take for traders to cover short positions on average declined from 2.67 to 2.27.
Sun Communities’s total return is -10.84% year-to-date, and investors seem to be reducing their bets that the stock will continue its decline.
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VICI Properties Inc.
VICI Properties Inc. VICI is a New York-based diversified experiential REIT that owns and operates gaming, hospitality, and entertainment properties. Its triple-net portfolio includes well-known Las Vegas hotels such as Caesars Palace, MGM Grand, and the Venetian Resort.
VICI Properties was formed as a REIT in 2017 and was a spinoff from Caesars Entertainment Operating Company as part of a Chapter 11 reorganization. It held its IPO on Feb. 1, 2018. Vici Properties' portfolio of 93 properties presently includes 54 gaming and 39 nongaming facilities, with 60,300 hotel rooms and over 500 restaurants, bars, nightclubs and sportsbooks. VICI properties has seen a large inflow of investors buying its corporate bonds this year.
On June 21, Morgan Stanley analyst Ronald Kamdem maintained VICI Properties with an Equal-Weight rating and kept the previous $33 price target. That's a potential gain of 18.9% from its closing price of $27.75.
On June 4, VICI Properties reported 22.35 million shares, or 2.5% of all available shares, being shorted, an increase of 13.12% since its previous report. However, on July 4, VICI reported a decline of 14.23% in the short percentage of the float. The 20.49 million shares being shorted would take traders 3.2 days on average to cover all short positions.
VICI’s total return is -12.49% year-to-date, but investors are starting to reconsider shorting the stock.
Medical Properties Trust Inc.
Medical Properties Trust Inc. MPW is a Birmingham, AL-based health care REIT that owns and operates 436 general acute care hospitals with 43,000 licensed beds and other properties in the U.S. and nine other countries, including Europe and Australia.
On April 12, Medical Properties Trust announced a quarterly cash dividend of $0.15 per share, payable on May 1 to shareholders of record on April 22. This was the second dividend paid since the dividend cut last September from $0.29 to $0.15 per share.
On April 15, Medical Properties Trust jumped 18.80% on news that it sold 75% of its majority interest in five Utah hospitals to an unnamed investment fund. Simultaneous with the closing, the venture placed new non-recourse secured financing, providing $190 million of additional cash to MPW. The transactions give MPW approximately $1.1 billion in cash to reduce outstanding debt, including a $300 million Australian term loan due this year.
On July 2, Exane BNP Paribas analyst Nate Crossett downgraded Medical Properties Trust from Outperform to Neutral and cut his price target by 33%, from $6 to $4. This was somewhat unexpected because analysts had been increasing earnings estimates for Medical Properties Trust earlier in 2024.
On July 4, Medical Properties Trust announced its short percentage of float fell 4.5% since its previous report. It presently has 196.47 million shares sold short, or 45.38% of all available shares. Short sellers would need 16.52 days to cover all short positions on average.
Although Medical Properties Trust has lost 11.26% year-to-date, it's gained 11.48% since July 2, and investors are quickly closing short positions, sensing that the stock has little room to fall from its recent close of $4.19.
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