September was an ugly month for real estate investment trust (REIT) investors. Statements from the September Federal Open Markets Committee (FOMC) meeting confirming another rate hike in 2023, high interest rates for longer and fewer cuts in 2024 triggered a brutal across-the-board REIT sell-off.
Although the last two days of September were positive, many of the stalwart REIT leaders, such as Realty Income Corp. O, Mid-America Apartment Communities Inc. MAA, SBA Communications Corp. SBAC and Boston Properties Inc. BXP sustained double-digit losses, while others like Prologis Inc. PLD and Lamar Advertising Co. LAMR lost approximately 9%.
But there were a handful of standouts. Take a look at three lesser-known REITs that managed to buck the bearish trend and finish September with some impressive gains.
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Modiv Industrial Inc. MDV is a Reno, Nevada-based, internally managed diversified commercial REIT with 4.7 million square feet in 45 triple net-leased industrial, office and retail single-tenant properties across 16 states. Its occupancy rate is 100%, and its weighted average lease term (WALT) is 14.3 years.
Reasons Modiv has performed so well lately include:
On Aug. 10, Modiv sold 11 retail and two office properties to Generation Income Properties Inc. GIPR for $30 million in cash and $12 million in Generation Income preferred stock, with monthly dividends at an annual rate of 9.5%. That will generate an additional $1.2 million annually going forward.
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On Aug. 14, Modiv reported its second-quarter operating results. Adjusted funds from operations (AFFO) of $0.31 per share beat the estimates of $0.29 but was down from $0.35 per share in the second quarter of 2022. Revenue of $11.84 million beat the estimates by $574,000 and was above $10.14 million in the second quarter of 2022. Wall Street ignored the weaker year-over-year AFFO numbers and instead focused on Modiv beating estimates and increasing its revenue.
Recent insider activity is also encouraging. On Sept. 25, CEO Aaron Scott Halfacre purchased 208.75 shares of common stock at $14.08. Halfacre now owns 31,905 shares of common stock.
Halfacre purchased an additional 243.94 shares of common stock at $11.95 last month. Several other company directors also bought shares on Sept. 25.
Modiv pays a monthly dividend of $0.09583. The dividend has remained the same since February 2022. The $1.15 annual dividend yields 6.74%.
Modiv gained 36.48% over the month of September.
Modiv will also get a boost to its public relations when it rings the closing bell at the New York Stock Exchange on Sept. 29 to celebrate American manufacturing.
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 (SNF), senior housing, behavioral health and specialty hospitals, with eight-year WALTs. Signature Healthcare is its largest tenant with a portfolio concentration of 9%.
An important analyst upgrade propelled Sabra Health Care higher this past month. 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.
Despite reporting weaker-than-expected second-quarter FFO and revenue in August, Bank of America Securities analyst Joshua Dennerlein also upgraded Sabra Health Care from Underperform to Neutral, while raising the price target from $11 to $14. Sabra CEO Rick Matros told analysts that occupancy gains and easing labor pressures are driving rent coverage higher, and Medicaid reimbursements have been increasing.
Sabra Health Care was up 12.61% in September and has achieved a total return of 21.5% over the past three months.
Sunstone Hotel Investors Inc. SHO is an Aliso Viejo, California-based hotel REIT with 7,735 rooms in 15 hotels on both U.S. coasts and Hawaii. Its hotel brands include Hyatt Regency, Marriott, Hilton and Four Seasons.
Recent analyst ratings have been somewhat neutral on Sunstone. On Aug. 25, Morgan Stanley analyst Stephen Grambling maintained an Equal-Weight rating on Sunstone but lowered the price target from $10 to $9. On Sept. 28, Wolfe Research analyst Keegan Carl initiated coverage with a Peer Perform rating without a price target. The same day, Barclays analyst Anthony Powell maintained Sunstone with an Underweight rating and lowered the price target from $10 to $9.
Sunstone's September gain of 5.79% may have been more of a bounce off the bottom than anything to do with positive news. It fell from $10.19 to a low of $8.55 near the end of August.
Note: Gains for the month were based on early morning prices on Sept. 29.
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