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3 Tempting REITs You May Want To Avoid

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Real estate is immune to the ongoing tough economic conditions as home sales plummeted by a staggering 31% in September 2022. Fannie Mae Home Purchase Sentiment Index) fell in October for the eighth straight month. Today, only 16% of consumers believe now is the right time to buy a home.

Commercial real estate is also struggling as borrowing costs rise. The situation could get worse as Federal Reserve Chairman Jerome Powell said talks of a moratorium on rate hikes were ‘premature’, further increasing mortgage costs going forward. There is likely to be. Additionally, the changing lifestyle landscape of the post-pandemic era has reduced demand for commercial properties leased as office workspace.

The Dow Jones US Select REIT Index is down 25.05% year-to-date, while the equivalent equity index is down just 7.73%. Therefore, some real estate investment trusts (REITs) may not be the wisest investment option at the moment. Let’s take a look at the highly speculative REITs to avoid this month.

EPR Properties (NYSE: EPR)

The Missouri-based company is one of the largest owners and operators of theater facilities in the United States and Canada, with a total investment of over $2 billion. His EPR property with a dividend yield of 7.99% is currently attracting investors’ attention.

But don’t let the high dividend yield fool you. REIT dividend payments have actually declined at a compound annual growth rate (CAGR) of 10.54% over the past three years. More interestingly, its largest tenant, Regal Entertainment Group, the parent company of UK-based cinema operator Cineworld Group, recently announced bankruptcy. Regal Entertainment leases 57 theaters from EPR Properties.

The situation will have some severe implications for EPR Properties, as Regal Entertainment Group’s rent payments account for 13.5% of the former’s total revenues (quarter ended June 2022). After filing for Chapter 11 bankruptcy, Legal Entertainment said he did not pay the September 2022 deferred rent. Having resumed payments in October, EPR Properties said in its latest quarterly report: Timely and complete way. ”

Additionally, the theater-going trend is on the backburner as over-the-top platforms like Netflix and Amazon Prime skyrocket in popularity. This change poses a significant threat to his EPR assets in the long run.

ARMOR Residential REIT Inc. (NYSE: arrival)

ARMOR Residential is clearly bearing the brunt of a rapidly cooling housing market, with its stock price down nearly 40% year-to-date. As a result, the REIT’s financial situation deteriorated significantly. Book value for the third quarter ended September 30 was down 19.59% sequentially to $5.83. The total loss at the end of the quarter was $152.7 million, or $1.26. ) Comprehensive loss reported in the prior quarter (ending June 2022). Net interest income also fell by nearly $10 million quarter-on-quarter.

ARMOR Residential pays an annual dividend of $1.20 and earns a staggering 20.24% at its current share price. It’s easy to be tempted by double-digit percentages, but don’t fall into a yield trap. The company’s dividend has actually declined at a CAGR of 18.29% over the past three years and a CAGR of 19.04% over the past ten years.

ARMOR Residential has actually cut its annual dividend payout for 2020 despite the booming real estate market during the COVID era. Analysts expect the company to cut its annual dividend by 2 cents next year.

Claros Mortgage Trust Inc. (NYSE: CMTGMore)

Headquartered in New York, Claros Mortgage Trust originates and manages commercial real estate loans nationwide. Demand for senior and subordinated loans has declined significantly in recent months as the real estate space has cooled rapidly amid record high mortgage rates. .

The REIT raised about $878 million in new loans, but earnings plummeted quarter by quarter in the three months ending Sept. 30, 2022. Net income was $42.07 million, reflecting a 33% decline from the second quarter. Distributable Earnings Per Share (EPS) decreased 10 cents (23.25%) for the second consecutive quarter.

JP Morgan analyst Richard Shane recently issued a bearish underweight rating. He has set his price target on his CMTG stock at $16.50, indicating he could fall 8.54% from the current price.

Claros Mortgage Trust was founded in 2015, but only recently started paying dividends. The annual dividend is $1.11 and the yield is 6.25%. With the company’s margins declining, it is questionable whether the REIT can sustain its current payment structure.

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