3 REITs Shunned By Wall Street: Any Hope For A Turn-Around?

Almost every business has a period in which problems arise, either because of economic forces, competition or declines in sales. At those times, the stock price can suffer until either internal or external events improve.

Take a look at three real estate investment trusts (REITs) that have experienced prolonged periods of poor performance and some of the reasons contributing to the price declines. Two of them seem to be poised for improvement, while one seems unable to turn itself around.

Medalist Diversified REIT Inc. MDRR is a Richmond, Virginia-based diversified REIT that acquires, owns and manages commercial real estate in the Southeast U.S. Its portfolio includes industrial, multifamily, retail and hospitality properties. It presently has eight properties with 851,282 square feet of leasable space and has an occupancy rate of 97%.

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Medalist had been on a downward trend for several years and costs were getting out of hand. Its stock price had fallen from over $57 in 2018 to around $6 per share by July 2023. Pressure was coming from outside investors that something needed to be done to turn the company around.

The board responded by terminating the external manager and eliminating some internal management positions to save nearly $1 million per year.

Board member Francis P. Kavanaugh took over in July 2023 as Medalist's interim president and CEO, replacing Thomas (Tim) Messier, chairman and CEO, and Vice Chairman, President and Chief Operating Officer William Elliott. In addition, the quarterly dividend of $0.08 per share was suspended for six months, and Kavanaugh agreed to forego compensation during the dividend suspension period.

Medalist also announced that it was exploring other opportunities that might include a merger, investments or other strategic combinations to enhance shareholder value. Four properties were sold to raise cash.

In October, the Medalist Board approved the repurchase of an additional 200,000 shares of company common stock at a maximum price of $6 per share. 

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In February 2024, the dividend was reinstated at $0.01 per share. While that's certainly not a huge amount, it was a positive for the stock.

Showing new faith in the company, between March 11-14, Kavanaugh purchased 36,801 shares of company common stock at an average price of $5.61.

The stock price recently started turning around. Between Feb. 26 and March 22, the shares have a total return of 12.62%. By contrast, the Vanguard Real Estate Index Fund ETF VNQ has a total return of only 0.82% during that same period.

Medalist seems determined to improve its performance and investors should pay attention.

Office Properties Income Trust OPI is a Newton, Massachusetts-based office REIT with 152 properties covering 20.5 million square feet. Its most recent occupancy rate is 86.9%, down from a third-quarter occupancy of 89.9%. Office Properties is externally managed by the RMR Group Inc. RMR.

Office Properties stock had a bad 2023, and by the end of August, it had declined from around $13 to $7.25. Higher interest rates and declining occupancies were the two major reasons.

In September 2023, after opposition from shareholders, Office Properties Income Trust agreed to terminate its proposed merger from April with Diversified Healthcare Trust DHC, another REIT managed by the RMR Group. That announcement, along with the Federal Reserve's pause on interest rate hikes, helped to advance Office Properties' shares throughout the rest of 2023.

As 2024 began, former President and CEO Christopher Bilotto was moved from Office Properties to become president and CEO of Diversified Healthcare. Yael Duffy, who was a senior vice president of the RMR Group and president and chief operating officer (COO) of Industrial Logistics Properties Trust ILPT, took over as president and COO of Office Properties Trust.

But things were about to get more difficult. On Jan. 11, Office Properties Trust announced it was cutting its quarterly dividend from $0.25 to $0.01 per share. 

New CEO Duffy said the cut was necessary because of deterioration in market conditions over the past year and Office Properties' desire to increase liquidity and financial flexibility when addressing future leasing costs, capital expenditures and debt maturities. The estimated savings is approximately $47 million per year.

This was not the first time Office Properties has slashed its dividend. In January 2019, the dividend was cut from $1.72 per share to $0.55 per share and in April 2023, the $0.55 dividend was cut to $0.25 per share. 

The announcement sent Office Properties' shares tumbling more than 33% lower.  

On Feb. 15, Office Properties announced its fourth-quarter operating results. While revenue of $133.17 million beat the estimate of $133.11 million and also beat its fourth-quarter 2022 revenue of $127.92 million, the funds from operations (FFO) of $0.95 per share declined from $1.13 per share in the fourth quarter of 2022.

The shares were clobbered again, falling to a recent low of $1.91 per share, but have since recovered to $2.07 per share. Since the 2016 high of $46.81, Office Properties stock has now lost over 95%.

Unfortunately, for Office Properties' investors, a turn-around does not seem likely any time soon.

Apartment Investment and Management Co. AIV is a Denver-based diversified REIT that owns, leases and manages apartment complexes. AIMCO, as it now calls itself, has 5,600 units across the U.S. and has over 700 apartment homes in pipeline development as well.

AIMCO's average daily occupancy rate in the fourth quarter of 2023 was 96.7%, down from 98.5% in the third quarter.

On Feb. 22, AIMCO reported its fourth-quarter 2023 operating results. While revenue of $49.35 million beat the estimate of $48.2 million and $41.97 million from the fourth quarter of 2022, generally accepted accounting principles (GAAP) earnings per share (EPS) of negative $1.07 was far worse than the estimate for negative $0.06 per share. In addition, forward full-year 2024 EPS guidance of negative $0.50-negative $0.40 was well below estimates of negative $0.17.

Recently AIMCO has been pressured by activist hedge fund Land & Buildings Investment Management, which owns 6% of the company. Land & Buildings has been critical of AIMCO's performance and would like to see the REIT explore a potential sale of the company in the $11-$13 per share range. From its most recent close of $7.99, that would be a substantial gain.

From August 2022 to October 2023, AIMCO stock slid 42.3% from $9.77 to $5.63 per share.  However, over the past 52 weeks, AIMCO has had a total return of 12.06% and an 11.44% gain within the past four weeks. AIMCO is beginning to see some improvement in share price, even if the fundamentals seem to be languishing. One possible reason for optimism could be the ongoing inability of young renters to afford to buy a home.

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