It’s been a turbulent few years for real estate stocks. The pandemic has brought unprecedented changes to people’s daily lives and work habits. Certain categories of real estate investment trusts (REITs) benefited from these adjustments. Subsectors such as data centers and industrial warehouses experienced a surge in demand during the pandemic.
But many categories of real estate didn’t fare well. One category that is gaining a lot of heat is malls and shopping centers. The past two years have seen a major shift from brick-and-mortar retail to e-commerce. Offices are another category of real estate stock facing problems. Employees are slowly returning to the office. But telecommuting is taking hold for many roles, and more companies are adopting hybrid work models that require less expensive office space. Office REITs have struggled to adapt to this change.
It’s not just office and mall real estate stocks that are struggling. Significant increases in interest rates and changes in credit market conditions are causing problems for several other REIT subsectors. Investors should pay particular attention to these seven real estate stocks.
|SPGs||Simon Property Group||$89.13|
|IIPRMore||innovative industrial property||$88.09|
|GNL||global net lease||$10.31|
|OPI||office property trust||$13.54|
|SKT||Tanger Factory Outlets||$13.59|
|MPW||medical property trust||$11.44|
Simon Property Group (SPG)
A niche has developed on YouTube for people filming old shopping malls in various states of decay. They range from malls that are still operating with mostly empty corridors to completely closed and abandoned ones. People have turned to watching these “dead mall” videos, sometimes nostalgically, to remember a time when these buildings were still centers of commerce and social activity.
Of course, not all malls are dead malls. But their numbers are growing. According to a 2020 report, 25% of America’s remaining 1,000 malls are release the shutter Within the next 3-5 years. The collapse of former major department stores such as Sears and JC Penney has accelerated this decline as malls were left without the major tenants that these companies once served.
Simon Property (New York Stock Exchange:SPGs) has some of the best malls in the country. We are also actively diversifying into outlets and overseas real estate. Still, the company is battling a relentless decline in its core asset group. Simon has weathered the pandemic successfully, but the long-term prospects are uncertain at best. And given current inflation and the potential for an economic slowdown, this holiday season could be tough for both shoppers and retailers.
Maseric (New York Stock Exchange:Mac) is another shopping mall REIT. The company has traditionally focused on luxury shopping malls. The mall is somewhat secluded as this trust focuses on luxury. The old middle-class malls backed by JCPenney and Sears aren’t a viable model today, but high-end malls still exist.
Unfortunately for the real estate stock of this space, building and maintaining a luxury mall requires a huge capital cost. Macerich’s properties are still doing well, but rents aren’t growing as fast and they aren’t making a lot of money. In the late 2010s, MAC’s stock had already plummeted from $50 to $20, and investors knew the company’s prospects were bleak.
The pandemic has accelerated this trend. MAC’s stock price has fallen to $6 in 2020, and the company’s dividend has been slashed. It’s easy to blame Covid-19 for the company’s problems. But the truth is that Maseric was heavily indebted and had a difficult future in any case. Maserich’s shares seem destined to fall below their previous lows.
Innovative Industrial Property (IIPR)
innovative industrial property (Nasdaq:IIPRMore) is a cannabis-focused REIT. Specifically, Innovative Industrial purchases greenhouses and cannabis growing facilities and rents them out to marijuana growers.
Originally, this was a good business model due to certain quirks. Because cannabis is still illegal at the federal level, banks typically don’t lend to marijuana companies. This lack of capital could make it impossible for cannabis companies to fund production facilities.
Innovative Industrial has come up with a solution. It raises money from investors and uses it to finance its growing companies. In the beginning, Innovative Industrial was the only game in town, making huge returns on the capital invested. But with more of his REITs and specialty lenders eyeing the same market, the competition is heating up.
Meanwhile, some of Innovative’s tenants are in trouble.After all, the downside of making 20% of your capital is that tenants may not be able to pay such punitive rent. sold its IIPR shares double digit downMore tenants appear to be on a weaker financial footing. Adding to the headache, if marijuana is legalized nationwide, banks will be able to lend directly to cannabis farmers, making the innovative future less certain.
Global Net Lease (GNL)
global net lease (New York Stock Exchange:GNL) is a REIT focused on net lease properties in the US, Canada and Europe. A triple net lease is a type of real estate transaction in which the building is turned over to the tenant and the tenant bears the major operating expenses.
Triple net leases have historically been a solid performer in the REIT category. Therefore, many investors generally like the global net leasing business model. However, the company has always struggled to achieve the same level of success as rivals such as: real estate income (New York Stock Exchange:〇). Because of this, Global Net Lease has a high cost of capital and has to pay more to get funding for new properties from investors.
This allows Global Net Lease to significantly dilute its shareholder base while offering an unusually high dividend yield. This worked for him before 2020, but now the company’s weakened balance sheet has caught up. The company’s European exposure is primarily in the UK. There, the financial crisis will plunge the value of the British pound and affect Global Net Lease’s earnings from that market. GNL stock currently yields 14%. Investors may think it’s a big deal. But more likely, Global Net will have to cut its dividend because it cannot sustain its current payouts.
Office Property Trust (OPI)
office property trust (Nasdaq:OPI) is one of the smaller struggling real estate stocks that, like Global Net Lease, is likely to cut its dividend going forward. Office Property Trust shares currently offer an impressive 15% dividend yield. This may seem like a great offer for retirees and income-seeking investors.
However, the Office Properties Trust does make money from the offices. Nor do we own the top offices in any particular market. We own less expensive properties that have historically attracted significant interest from tenants looking for more affordable office leases.
But now, given the low occupancy rates across the industry, businesses can choose any office they like for new leases. It’s hard to get new tenants unless you own the office. At a yield of 15% he buys OPI shares Investors see a past when the Office Properties Trust had a stable business outlook. Now, however, the company will have to accept a significant cut in Bill’s interest rate going forward, which could lead to a significant dividend cut.
Tanger Factory Outlets (SKT)
Tanger Factory Outlets (New York Stock Exchange:SKT) is a shopping center REIT specializing in outlets. The outlet center model was a great template for real estate stocks 20 years ago. Operators such as Tanger and Simon will build major shopping spots in tourist areas and along the highways between his two big cities. People went to outlet centers to pick up bargains not available in malls or downtown shopping areas. The idea was that outlets would provide retailers with an alternative location to put away certain types of products, while also providing shoppers with a fun and novel bargain hunting experience.
It’s unclear, however, whether outlets will make enough sense in 2022. Thanks to the internet, it’s now possible to shop cheaply without even stepping out of your home.On the other hand, discount retailers like loss store (Nasdaq:lost) With stores in major cities, you don’t have to drive to a distant outlet center to experience it.
Tanger remains focused on its outlet business and has made no serious efforts to reorient its business. Like Macerich, Tanger’s financial results were poor pre-pandemic, with the company consistently reporting flat to slightly declining financial results in his late 2010s. Right now, the post-2020 landscape for REITs is getting worse and worse. Tanger may last a little longer, but the long-term forecast for both Tanger and the outlet shopping experience looks grim.
Medical Property Trust (MPW)
medical property trust (New York Stock Exchange:MPW) is a REIT that specializes in owning hospitals. The company embarked on a gargantuan acquisition, acquiring hospitals left and right.Unfortunately, the largest tenant, Steward Health Care Systems, lost $800 million in recent years. The Medical Properties Trust apparently had to step in directly and lend large sums of money to the stewards and his CEO to keep the struggling hospital system going. Steward accounted for his 30% of his Medical Properties Trust earnings in 2020, so a default here could be devastating.
Short sellers have hunted down MPW stock all year, and for good reason. The stock continues to fall, and the Trust’s dividend yield, currently at 9%, appears to be getting thinner.
In addition to the above, there has been significant trading in put options on the Medical Properties Trust, especially towards the October 2021 option maturity. Over 40,000 put options changed hands in just one day last week. That’s a staggering volume for a small, relatively unobtrusive REIT, and suggests that someone is making a big bet on bad news about near-term tenants and possible dividend cuts.
As of the date of publication, Ian Bezek did not have any positions (directly or indirectly) in the securities referred to in this article. The opinions expressed in this article are those of the subject author of InvestorPlace.com. Publication guidelines.