3 well-known REITs are getting surprise discounts to start the week

Analysts downgrading a stock is a daily occurrence, certainly nothing out of the ordinary. But the big news is that respected stocks with a large following are also the subject of the cuts.

This week began with downgrades of three popular real estate investment trusts (REITs) across three different sub-sectors. Two of the cuts were by the same analyst at Bank of America Securities and the other by an analyst at Argus Research.

Take a look at the three REITs that could experience a drop in share price as a result.

Boston Real Estate Company (NYSE: BXP) is a Boston-based REIT of 191 properties, as of June 30, concentrated in the six largest cities from Boston to Seattle. The company calls itself “the largest developer, owner, and manager of prime workplaces in the United States.” It has an area of 54.1 million square feet that is 88.6% leased with a weighted average lease of 7.5 years. Many of its properties are rated first class and are located in highly sought after areas of the cities.

On August 14, Argus Research analyst Mary Ferguson downgraded Boston Properties from Buy to Hold. Rising office vacancies, tepid return-to-office trends, and high debt interest expenses put many office REITs at a disadvantage.

But the downgrade was a surprise because Boston Real Estate beat analyst estimates for both funds from operations (FFO) and revenue in its second-quarter operating results on Aug. 1. The only negative was that despite raising the full year 2023 FFO guidance, management expected a 4% decline in midpoint FFO.

The downgrade is also surprising, given that on Aug. 9, Wells Fargo analyst Blaine Heck maintained his overweight position in the Boston real estate firm and raised its price target from $64 to $80.

Boston Properties pays a quarterly dividend of $0.98. With the price lower over the past week, the annual dividend of $3.92 now yields 6%.

Last year was a tough one for Boston Properties, and its total return was negative 40.39%. The year-to-date in 2023 has been much better, with a total return to date of 3.03%.

Common: This REIT you’ve never heard of is crushing the market — up 36% over the past two years

WP Carey Inc. (NYSE: WPC) is a diversified net lease fund located in New York City, whose individual tenant holdings include industrial, warehouse, office, retail, and self-storage units. It was founded in 1973 and recently celebrated its 50th anniversary of investing in real estate. WP Carey has been trading on the New York Stock Exchange since 1998 and converted to a REIT in 2012.

WP Carey currently owns 1,475 net leased properties with approximately 180 million square feet in 26 different countries. Its portfolio includes 398 tenants from more than 30 industries and an occupancy rate of 99%. An important consideration is that 99.1% of property rentals include rental escalators to protect against today’s inflationary environment.

WP Carey has raised the quarterly dividend for 98 consecutive quarters, dating back to 1999. The annualized yield of $4.28 yields 6.53% and the forward FFO payment ratio is 81.3%. While the payout ratio is a bit higher than investors would like to see, it still easily covers the dividend and has been down over the past few quarters.

WP Carey is another REIT that beat consensus estimates for FFO and revenue in its second-quarter earnings report released on July 28th.

But on Aug. 14, Bank of America Securities analyst Joshua Denerlin downgraded WP Carey from Neutral to Underperform and lowered his price target from $78 to $67. Dennerlein has become more bearish in net rent REITs.

“Our models do reflect higher interest costs,” he wrote, “but the risks appear to be skewed toward a further increase in the cost of capital.” We will watch interest rate movements closely.

Denerlin said he believes same-store growth has now peaked and that WP Carey will need to clear vacant offices moving forward.

RBC Capital Markets analyst Brad Heffern still has an Outperform rating and a price target of $79 on WP Carey as of the end of July.

EPR properties (NYSE:EPR) is a diversified experiential fund located in Kansas City, Missouri, that owns and operates 363 chains of movie theaters, theme parks, ski resorts, fitness centers and other entertainment venues with more than 200 tenants in 44 states.

On August 2, EPR Properties reported its operating results for the second quarter. FFO of $1.28 beat estimates of $1.26 and was higher than $1.17 in Q2 2022. Revenue of $172.19 million beat estimates of $148.66 million by 16.31% and was a 7.77% increase over revenue of $160.45 million in The second quarter of 2022.

Along with the second quarter results, EPR Properties also gave its guidance for the full year 2023 of $5.05 to $5.15. The estimated consensus was $4.90.

On August 14, Bank of America Securities analyst Dennerlein downgraded EPR Properties from Buy to Neutral and cut its price target from $50 to $45. Denerlin noted, “The length of the (Hollywood writer/actor) strike and its impact on content production is the main risk from an up/down perspective on the multiplier.”

One week ago, JMP Securities analyst Mitch Germain reiterated the market’s outperformance rating on EPR properties with a price target of $54.

One might wonder if the analyst would reset EPR Properties’ rating should the strike end quickly. If so, the recent price drop from $47.40 to $42.76 could provide investors with an opportunity to snap up stock prices with a solid return. The monthly dividend of $0.275 has an annual yield of $3.30 which yields 7.71%.

EPR Properties did well in 2023, with a total return of 21.1%

Keep in mind that analysts are only right with their valuations 50% of the time, and investors should do their own due diligence before embarking on any stock trades.

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