Real estate is still not immune to the ongoing harsh economic conditions, with home sales plummeting 31% in a row in September 2022. Mortgage rates are soaring from multiple benchmark rate hikes. so far this year and consumer sentiment (as measured by the Fannie Mae Home Buyer Sentiment Index) fell for eight straight months in October. Currently, only 16% of consumers believe now is the right time to buy a home.
Commercial real estate is also struggling as borrowing costs climb. The situation could get even worse, with Federal Reserve Chairman Jerome Powell declaring that talks on a pause in rate hikes are “too soon,” hinting mortgage costs will continue. get a raise. Furthermore, the changing lifestyle landscape in the post-pandemic era has reduced the demand for commercial real estate for office rental.
The Dow Jones US Select REIT is down 25.05% year-to-date, while the equity index equivalent is down just 7.73%. So it can be said that some real estate investment trusts (REITs) may not be the wisest investment choice at the moment. Consider the highly speculative REITs you’ll probably want to avoid this month.
EPR properties (NYSE: EPR)
This Missouri-based company is one of the largest theater property owners and operators across the United States and Canada, with a total investment of more than $2 billion. With a dividend yield of 7.99%, EPR Properties is definitely attracting investors’ attention right now.
But don’t be fooled by the high dividend yield. REIT’s dividend payouts have actually declined at a compound annual growth rate (CAGR) of 10.54% over the past three years. More interestingly, its biggest tenant, UK-based cinema operator Cineworld Entertainment Group parent company Regal Entertainment Group recently declared bankruptcy. Regal Entertainment leases 57 theaters from EPR Properties.
This situation will have some harsh ramifications for EPR Properties, as Regal Entertainment Group’s rent payments accounted for 13.5% of the company’s total revenue previously (for the quarter ending June 2022). ). After filing for Chapter 11 bankruptcy, Regal Entertainment failed to pay deferred rent for September 2022. While continuing to pay in October, EPR Properties stated in its latest quarterly reports. that “it cannot be guaranteed that further payments will be made in a timely and complete manner.”
Moreover, as the popularity of dominant platforms like Netflix and Amazon Prime skyrocketed, the trend of going to the theater has fallen behind. This change poses a much greater threat to EPR assets in the long run.
ARMOR Residential REIT (NYSE: ARR)
With shares down nearly 40% year-to-date, ARMOR Residences is certainly feeling the brunt of the rapidly cooling housing market. As a result, the REIT’s finances have deteriorated significantly. Its book value fell 19.59% from the previous quarter to $5.83 for the third fiscal quarter ended September 30. Total comprehensive losses amounted to $152.7 million, equivalent to $1.26 at the end of the quarter, compared with $93.2 million (or $0.90 per share). ) comprehensive loss reported for the previous quarter (ending June 2022). Its net interest income also fell by nearly $10 million sequentially.
ARMOR Residential pays a dividend of $1.20 annually, giving it an impressive 20.24% yield on the current share price. It’s easy to be tempted by double-digit percentages but don’t fall into the yield trap. The company’s dividend payout ratio has actually declined at a CAGR of 18.29% over the past three years and at a CAGR of 19.04% over the past 10 years.
ARMOR Residences actually reduced their annual dividend payments in 2020, despite the booming real estate market in the COVID era. Analysts expect the company to reduce its annual dividend by two cents next year.
Claros Mortgage Trust Inc. (NYSE: CMTG)
Headquartered in New York, Claros Mortgage Trust originates and manages loans for commercial real estate across the US As the real estate space cools at a rapid pace amid mortgage interest rates record high, demand for senior and junior loans has dropped significantly in recent months.
Although the REIT raised about $878 million in new loans, its earnings fell sharply QoQ for the three months ended September 30, 2022. Net income came in at 42.07 million dollars, reflecting a 33% decrease from the fiscal second quarter. Distributed earnings per share (EPS) fell 10 cents, or 23.25%, last quarter.
JP Morgan analyst Richard Shane recently gave the stock an underweight rating. He has a price target of $16.50 on CMTG stock, suggesting a potential 8.54% drop from current prices.
Although founded back in 2015, Claros Mortgage Trust has only recently started paying dividends. It pays $1.11 in annual dividends, yielding 6.25%. As the company’s profit margins decline, the REIT will not be able to maintain its current payment structure.
See more about real estate investment from Benzinga
Browse passive real estate investment opportunities with Screening offers real estate by Benzinga.
Don’t miss real-time alerts on your stocks – join Benzinga Pro free! Try the tool that helps you invest smarter, faster and more efficiently.
© 2022 Benzinga.com. Benzinga does not provide investment advice. Copyright Registered.
