3 REITs That Were Hit With Downgrades This Week

Analysts downgrade a stock for several reasons. The stock may have risen so much in recent weeks that the analyst feels the stock is no longer a good value relative to its price, or the analyst feels a company is unlikely to perform well in the coming months. This could be because of increased competition, a decline in its products or services, a perceived downturn in the general economy or the resignation of a longstanding company insider.

Whatever the reasons, investors holding positions in downgraded stocks hate to see their shares fall after the downgrade. But it happens often.

Take a look at three real estate investment trusts (REITs) that received analyst downgrades this week, including one that differed greatly from some other recent analyst calls.

Crown Castle Inc. CCI is a Houston-based specialized REIT that focuses on owning, operating and long-term leasing of cell towers. Crown Castle owns more than 40,000 cell towers and 85,000 route miles of fiber and has 120,000 small cells in its portfolio.

Crown Castle works with businesses and governments to design and build solutions that meet connectivity needs like wireless coverage and custom fiber optic networks. It has a market cap of $50.84 billion, making it one of the largest REITs in the U.S. 

On Oct. 16, RBC Capital Markets analyst Jonathan Atkin downgraded Crown Castle from Outperform to Sector Perform and lowered the price target from $125 to $100. Atkin's negative view seems to be shared by Wells Fargo analyst Eric Luebchow, who on Oct. 17 maintained an Underweight position on Crown Castle and lowered the price target from $110 to $100. 

Crown Castle shares have fallen from $147 in February to a recent close of $94.58. Year to date its total return is negative 28.22%.

Medical Properties Trust Inc. MPW is a Birmingham, Alabama-based healthcare REIT that owns and operates 444 general acute care and other properties across the U.S. and in nine other countries, with locations in Europe and Australia. It has a portfolio valued at $19.2 billion, of which 64% are general acute care hospitals. About two-thirds of its properties are in the United States.

Medical Properties Trust has been on a downhill slide since early 2022, with its share price falling from $20.41 to $4.98. Despite this collapse, at least one analyst thinks there is more pain to come. 

On Oct. 16, Wells Fargo analyst Connor Siversky downgraded Medical Properties Trust from Equal-Weight to Underweight and announced a $4 price target. The next day, Siversky maintained his Underweight rating and lowered the price target from $7 to $4. A recent closing price was $4.99, so that represents another 19.8% of potential decline. 

Year to date, Medical Properties Trust's total return is negative 50.39%, making it the sixth-worst-performing REIT of 2023.

Sabra Health Care REIT Inc. SBRA is an Irvine, California-based healthcare REIT that has 426 investments across the U.S. Its portfolio consists of senior nursing facilities, senior housing, behavioral health and specialty hospitals with eight years of weighted average lease terms (WALT). Signature Healthcare is its largest tenant, with a rent concentration of 9%.

Sabra CEO Rick Matros recently told analysts that occupancy gains and easing labor pressures are driving rent coverage higher, and Medicaid reimbursements have also been increasing.

Sabra Health Care was one of the three best-performing REITs in September, with a gain of 12.61%. Its total return year-to-date is 22.6%, putting it in the top 10 of all REITs.

Despite these positives, on Oct. 17, BMO Capital Markets analyst John Kim downgraded Sabra Health Care REIT from Outperform to Market Perform and announced a $16 price target.   

What is unusual is that on Oct. 13, Bank of America Securities analyst Joshua Dennerlein upgraded Sabra Health Care REIT from Neutral to Buy. On Sept. 20, Jefferies analyst Jonathan Petersen upgraded Sabra Health Care REIT from Hold to Buy and raised the price target from $11 to $15. On Oct. 17, Wells Fargo analyst Siversky maintained Sabra Health Care REIT at Equal-Weight and raised the price target from $13 to $15. 

Analysts like Dennerlein have noted improvements in occupancy rates for Sabra's skilled nursing facilities, but analyst Kim feels that given the recent run-up in share price, the risk/reward level is now more balanced, perhaps limiting further upside.

Investors need to keep in mind that analysts are only correct about 50% of the time and they should always perform their own due diligence before making purchases or selling any stock.

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