2024's Rough Start: More Than A Half Dozen REITs Get Downgrades

November and December were two months of tremendous share price acceleration for most of the real estate investment trust (REIT) sector. Many REITs rose 30% or more after bottoming out at the end of October.

But often after such activity, analysts begin to sharpen their pencils and take a more stringent look at some of the issues that have made large price leaps. This year is already off to a rough start for several REITs that had share price appreciation at year's end. Several REITs had recently announced positive news, but that didn't keep the analysts from cutting them down a rating or two.

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Take a look at more than a half dozen analysts who downgraded REITs to begin the new year on a cautious note.

Stag Industrial Inc. STAG is a Boston-based industrial REIT that owns and operates both single and multitenant properties in 41 states. Most of its 568 properties are warehouses and distribution buildings in the Midwest and on the East Coast.

In December, Stag announced it had signed two lease renewals of 646,200 square feet in Chattanooga, Tennessee, and completed three new rooftop community solar projects in New Jersey.

Despite these positive events, on Jan. 5, Baird analyst David Rodgers downgraded Stag Industrial from Outperform to Neutral while raising the price target from $38 to $41.

Stag Industrial had a recent insider sale. On Dec. 22, Chief Accounting Officer Jaclyn Paul sold 12,900 shares of company stock for $497,553.

Rexford Industrial Realty Inc. REXR is a Los Angeles-based industrial REIT that owns or manages 371 properties with 45 million square feet in Southern California's high-growth areas. Its market capitalization is $12.04 billion.

On Jan. 4, Rexford announced the disposition of one industrial property for $11.3 million and the acquisition of two other industrial properties for an aggregate of $69.5 million. The acquisitions were funded from company cash, proceeds from forward equity settlements and a 1031 tax-deferred exchange.

On Jan. 5, Baird analyst Rodgers downgraded Rexford Industrial from Outperform to Neutral, while raising the price target from $53 to $61.

Medical Properties Trust Inc. MPW is a Birmingham, Alabama–based healthcare REIT that owns and operates 441 general acute care and other properties across the U.S. and in nine other countries, with locations in Europe and even Australia. It has a portfolio valued at $19 billion, of which about 64% are general acute care hospitals, and about two-thirds of its properties are in the United States. 

On Jan. 4, Medical Properties provided an update on Steward Health Care System, its largest tenant. Medical Properties said it's accelerating its efforts to recover uncollected rents from the fourth quarter of 2023 and outstanding loan obligations from Steward. Medical Properties agreed to fund a new $60 million bridge loan to Steward, secured by preexisting collateral plus a new second lien on Steward's managed-care business.

Steward also is exploring the possible sale or retenanting of certain hospital operations along with the divestiture of noncore operations. At the end of 2023, Steward still owed approximately $50 million to Medical Properties Trust.

On Jan. 5, KeyBanc Capital Markets Inc. analyst Austin Wurschmidt downgraded Medical Properties Trust from Overweight to Sector Weight.

Wall Street was quite disturbed by this announcement and between the news and the downgrade, investors drove Medical Properties shares down more than 30% in early morning trading.

Physicians Realty Trust DOC owns and operates a diverse group of 291 healthcare properties across 32 states. The majority of these are physician-leased medical office buildings. As of the third quarter, 94.6% of its offices were leased.

On Oct. 30, Physicians Realty Trust announced it has agreed to merge with Healthpeak Properties Inc. PEAK in an all-stock merger of equals valued at approximately $21 billion. The merger is expected to close in the first half of 2024.

Analysts are divided. On Jan. 5, KeyBanc analyst Todd Thomas downgraded Physicians Realty Trust from Overweight to Sector Weight. But a few days earlier, Compass Point Research & Trading analyst Merrill Ross maintained a Buy on Physicians Realty Trust, while lowering the price target from $19 to $18.

Mid-America Apartment Communities Inc. MAA is a self-administered residential REIT that specializes in purchasing and leasing apartment complexes. It owns just under 102,000 units in 300 communities across 16 states and Washington, D.C. Most of Mid-America Apartment Communities' properties are in the Southeast, Southwest and Mid-Atlantic states.

Mid-America Apartment Communities is a member of the S&P 500 and has been a public company for 28 years. The Atlanta and Dallas areas comprise over 22% of its same-store net operating income.

On Dec. 12, Mid-America increased its quarterly dividend by 5%, from $1.40 per share to $1.47 per share. The dividend is payable on Jan. 31 to shareholders of record on Jan.12.

On Dec. 13, Mid-America promoted Bradley Hill to president and chief investment officer. Hill previously served as executive vice president and chief investment officer of Mid-America Apartment.

Despite this recent news, on Jan. 2, Jefferies analyst Linda Tsai downgraded Mid-America Apartment from Buy to Hold and lowered the price target from $140 to $136.

AvalonBay Communities Inc. AVB is a residential REIT that acquires, develops and manages multifamily communities. As of the third quarter of 2023, AvalonBay Communities owned approximately 89,240 apartments directly or indirectly in 296 communities across 12 states and Washington, D.C.  

On Dec. 4, AvalonBay announced a public offering of $400 million senior unsecured notes at a 5.3% rate due Dec. 7, 2033. 

Analysts have been tough on AvalonBay during the first week of 2024. On Jan. 5, KeyBanc analyst Wurschmidt downgraded AvalonBay Communities from Overweight to Sector Weight. On Jan. 2, Wolfe Research analyst Andrew Rosivach downgraded AvalonBay from Outperform to Peer Perform.

Short interest on Avalon Bay has also been increasing in recent weeks and it now has 2.34 million shares sold short.

SITE Centers Corp. SITC is a Beachwood, Ohio-based retail REIT with 106 wholly-owned shopping centers, 65% of which are anchored by grocery stores or high-quality discounters in affluent areas of the U.S. Its third-quarter lease rate was 94.4%.

In October, SITE Centers spun off 61 convenience sector properties into a separate REIT called Curbline Properties. The spinoff is expected to take one full year, and Curbline is expected to start with a net cash position and no debt. SITE Center will still own 83 properties after the merger.

On Dec. 13, SITE Centers declared a special dividend of $0.16 per share, payable on Jan. 12 to shareholders of record on Dec. 27, with an ex-dividend date on Dec. 26. The special dividend is from the sale of about 15% of SITE Centers asset base.

Although this was all positive news, on Jan. 5, Wolfe Research analyst Rosivach also downgraded SITE Centers from Outperform to Peer Perform. SITE Centers gained over 28% in November and December. But this is 2024 and the sharp pencils are out.

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