3 REITs Near 52-Week Lows Just Received An Analyst Downgrade

Analysts often downgrade stocks they feel have run up in price too much or if some bad news comes out that can negatively impact a stock. But it's unusual to see downgrades come after stocks have been pummeled, have no recent bad news and are near or at 52-week lows.

The reason it's unusual is that analysts who downgrade stocks or slice price targets near 52-week lows run the risk of piling on too late and being embarrassed as an oversold stock rebounds and performs very well over the next few months.

An example of this occurred earlier this year when several analysts jumped on the bandwagon to downgrade or cut the price target of SL Green Realty Corp. SLG after it had already fallen from $41 to $21 in just two months. One particularly bad call was on March 28, when Citigroup maintained a Sell on SL Green and dropped the price target from $35 to $17, only to see it gap higher the next day and begin a run that would take it to $42.84 in six months.

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Take a look at three real estate investment trusts (REITs) that one analyst recently downgraded on the same day — after all three had already seen major price collapses this year. As was the case with SL Green, it will be interesting to see whether these downgrades also turn out to be a bad call.

Realty Income Corp. O is a San Diego-based, triple-net lease REIT, with over 13,100 properties around the world. The Monthly Dividend Company, as it's widely known, is a member of the S&P 500 and an S&P 500 Dividend Aristocrat, with 640 consecutive monthly dividends paid and 104 consecutive quarterly increases since 1994. Its portfolio's occupancy rate is 99%.

Realty Income recently began to diversify its holdings by investing $950 million in partnership with Blackstone to purchase Bellagio Las Vegas. Under the terms of the agreement, Realty Income will own 95% of the real estate assets of The Bellagio, along with 21.9% indirect interest in the property and a yield-bearing preferred equity interest in the joint venture.

Despite its many positives, Realty Income declined from over $70 a year ago, to a recent low of $48.41 on Oct. 3.

On Oct. 10, Bank of America Securities analyst Joshua Dennerlein surprisingly downgraded Realty Income from Buy to Neutral and announced a $52 price target.

Following the announcement, Realty Income sold off over 2.5% in the morning, touching $49.18 before bouncing back to finish at $50.20, down 0.69% for the day.

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On the same day as the downgrade, Realty Income declared a monthly dividend payment of $0.2556 per share, in line with its previous dividend. The annual dividend of $3.072 now yields 6.12%.

Spirit Realty Capital Inc. SRC is a Dallas-based retail REIT with free-standing, single tenants on triple-net long-term leases. Spirit Realty Capital owns 2,064 properties with tenants representing 37 industries. Its 345 tenants include The Home Depot Inc., Dollar Tree Inc., BJ's Wholesale Club Holdings Inc. and Dave & Busters. Its occupancy level is 99.8%.

During the second quarter, Spirit Capital completed the acquisition of 11 properties for $138.5 million, with a cap rate of 7.63% and a weighted average lease term (WALT) of 15.3 years.

On Aug. 10, Spirit Realty Capital announced an increase in its quarterly dividend from $0.663 per share to $0.6696 per share.

Despite these positives, the share price fell from $41.48 on July 24 to a low of $32.48 on Oct. 6.

On Oct. 10, Dennerlein downgraded Spirit Realty from Neutral to Underperform.

Spirit Realty hit a low of $32.84 that morning, but closed at $33.58, down 0.27%.

NetSTREIT Corp. NTST, like Spirit Realty, is a Dallas-based retail REIT with 531 properties across 45 states. Its single-tenant net leases cover 25 diverse industries. Some of its 87 tenants are Walgreens, 7-Eleven Inc. and Walmart Inc.

On July 26, NetSTREIT reported second-quarter earnings that were upbeat. Funds from operations (FFO) of $0.30 was up from $0.28 in the second quarter of 2022, and revenue of $31.63 million beat the estimate for $30.36 million and was 39.75% better than revenue of $22.63 million in the second quarter of 2022.

Despite this, NetSTREIT fell from $18.70 on June 14 to a 52-week low of $14.84 on Oct. 6.

On Oct. 10, Dennerlein downgraded NetSTREIT from Neutral to Underperform and cut the price target from $20 to $15. Dennerlein had the same concerns for NetSTREIT as for the other two REITs he downgraded.

NetSTREIT sank all the way to $14.49, a new 52-week low, before rebounding to $15.17, down 0.2% for the day.

Another analyst disagrees with Dennerlein. On Sept. 15, Stifel analyst Simon Yarmak maintained NetSTREIT with a Buy rating while lowering the price target from $21 to $20.

Investors are advised to perform their own due diligence and not just rely on the ratings of analysts, who are only correct about 50% of the time.

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