Wall Street analysts wield a lot of influence. A favorable or unfavorable mention of a stock by a well-known analyst or brokerage can move a stock up or down by several percentage points overnight. In the case of a downgrade or severe price target slash, it can take weeks or longer for a stock to recover.
An upgrade or downgrade can also spur other analysts to announce similar new ratings, leading to even larger gains or losses.
This week, three very different real estate investment trusts (REITs) began the week with downgrades and target price cuts. For two of these REITs, the downgrades come as no surprise, but for one of them, the downgrade was somewhat unexpected.
Take a look at three REITs that could begin this week on the downside as a result of analysts’ calls.
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National Storage Affiliates Trust NSA is a Greenwood Village, Colorado-based self-storage REIT that owns and operates 1,117 self-storage properties in the largest metropolitan areas throughout 42 states and Puerto Rico.
On June 12, Evercore ISI Group analyst Samir Khanal downgraded National Storage Affiliates from Outperform to In-Line, while lowering the price target from $49 to $42. This downgrade was not surprising for the following reasons:
National Storage’s latest quarterly earnings report was mixed. On May 1, National Storage reported first-quarter core funds from operations (FFO) of $0.66 per share, missing the consensus estimate of $0.69 and a decrease of 2.94% from FFO of $0.68 per share in the first quarter of 2022. But revenue rose from $187.18 million in the first quarter of 2022 to $207.99 million in first quarter this year and beat the consensus estimate of $203.46 million by 2.23%.
National Storage Affiliates also recently received downgrades from other analysts. On May 8, Bank of America Securities analyst Jeffrey Spector downgraded National Storage from Neutral to Underperform and lowered the price target from $48 to $38. On April 13, Wolfe Research analyst Keegan Carl downgraded National Storage from Peer Perform to Underperform.
Since the April 13 downgrade, National Storage Affiliates has had a total return of negative 9.39%. Other self-storage REITs have not performed well in recent weeks either. CubeSmart CUBE has a total return of negative 5.38% in the past two months, and U-Haul Holding Co. UHAL is down 8.37% over that same time frame. Analysts are concerned that there is too much competition in the subsector, which will ultimately reduce occupancy rates.
National Storage Affiliates has an upcoming ex-dividend date of June 14. It pays a quarterly dividend of $0.56 per share, an increase of 1.8% from its previous quarterly dividend.
American Homes 4 Rent AMH is a Calabasas, California-based residential REIT that purchases, develops, renovates and leases both used and new single-family homes as rental properties. American Homes 4 Rent was created in 2012 and in only 11 years has built a portfolio of 57,736 single-family units across 21 states. Its largest concentration of homes is in the Southeastern U.S., where population growth has been explosive and its present occupancy rate is 97.2%.
Note: The American Homes 4 Rent website states its new name going forward will simply be AMH.
On June 12, Evercore ISI Group analyst Steve Sakwa downgraded American Homes 4 Rent from Outperform to In-Line and announced a price target of $36. Unlike National Storage Affiliates, this downgrade was a bit of a surprise, given its most recent quarterly earnings report.
On May 4, American Homes 4 Rent presented its first-quarter operating results. FFO of $0.41 per share beat the estimates by a penny and was a 7.89% increase over FFO of $0.38 in the first quarter of 2022. Revenue of $397.7 million beat the consensus estimate of $390.57 million and was an 11.68% increase over revenue of $356.11 million in the first quarter of 2022.
The downgrade is also surprising, given the number of analysts who recently gave American Homes 4 Rent positive reports:
On May 30, Wells Fargo analyst James Feldman maintained an Equal-Weight rating on American Homes 4 Rent and raised the price target from $31 to $36. In May, four other analysts raised price targets on American Homes 4 Rent to between $35 and $37.
American Homes 4 Rent also has an ex-dividend date of June 14. It will be paying a quarterly dividend of $0.22. The dividend has grown 340% over the past five years.
Perhaps the biggest negative about American Homes 4 Rent presently is that its price/FFO ratio is a bit high at 20.72. It’s also approaching a recent price peak where resistance has been met twice in 2023.
Rexford Industrial Realty Inc. REXR is a Los Angeles-based industrial REIT with 365 properties and 44.2 million square feet that it owns or manages, all of which are in Southern California’s high-growth areas. Its market capitalization is $11.572 billion.
On June 12, BMO Capital Markets analyst John Kim downgraded Rexford Industrial Realty from Outperform to Market Perform and lowered his price target from $69 to $56.
This downgrade is also a bit surprising. Rexford Industrial Realty reported its first-quarter operating results on April 19, one of the first REITs to do so. Funds from operations were $0.52, up from $0.48 in the first quarter of 2022 and ahead of estimates by a penny per share. Revenue of $185.16 million was also higher than revenue of $140.59 million from the first quarter of 2022, but $2.35 million below the Street estimates.
There was one recent negative — on May 10, Rexford Industrial announced a public offering of 13.5 million shares of common stock at a price of $55.60 per share. Shares have fallen from over $57 to a recent close of $51.38 since that announcement was made. Rexford Industrial has a total return of negative 31.67% over the past 14 months.
Perhaps, like American Homes 4 Rent, the price/FFO ratio of 23.39 on Rexford Industrial is seen as being too high, even with the falling of its share price so precipitously.
Investors should keep in mind that analysts are not always right, so they should always do their own research before purchasing any stock.
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