It was a tumultuous 2023 for the housing market, marked by rising mortgage rates and stagnating sales and inventory. So, investors are closely eyeing real estate investment trusts (REITs) to sell in anticipation of market shifts.
As 2024 ushers in, signs of improvement are emerging. Mortgage rates are beginning to drop and a consequent modest uptick in home sales. Despite the persistent housing shortages, a silver lining appears. It takes the form of a slight increase in new construction projects, providing a glimmer of hope.
However, investors should tread cautiously, especially during an election year that could introduce potential volatility. This evolving landscape presents a critical juncture. Investors need to determine which REITs to sell, as the market recalibrates in response to these changing dynamics.
Global Net Lease (GNL)
In the complex realm of REITs, Global Net Lease (NYSE:GNL) focuses on commercial properties across the U.S. and Europe. It has effectively carved a niche in income-producing properties under long-term leases. GNL invests in single-tenant industrial, office, and retail spaces.
However, the shifting sands of the post-pandemic era bring challenges. And so, single-tenant office properties are clouded by remote working trends. Additionally strainful is GNL’s recent merger with Necessity Retail. This has significantly expanded its share count and doubled down on its debt. This spotlights financial vulnerabilities in its expansion strategy.
Furthermore, its average-funds-from-operation (AFFO) growth over the past three and five years is at a negative 3.3% and 4.5%, respectively. Additionally, dividend growth rates are firmly in the negative, with its 5-year dividend growth rate at a negative 6.1%.
Blackstone Mortgage Trust (BXMT)
In the intricate landscape of mortgage REITs, Blackstone Mortgage Trust (NYSE:BXMT) focuses on investing in commercial mortgage loans, an industry marred by high uncertainty.
This backdrop prompts a cautious approach, especially for investors considering BXMT stock. The trust is grappling with multiple challenges that dull its investment allure. Notably, BXMT bonds once deemed a safer alternative, have substantially underperformed compared to its equity. A significant factor in this subdued outlook is BXMT’s substantial exposure to the U.S. office sector. And this market segment is known for its volatility and potential for distress.
This exposure raises concerns about its potential impact on the company’s financial health. Further clouding its prospects, Gurufocus Metrics rates the company’s financial strength, profitability, and growth at modest scores of 3/10, 5/10, and 2/10, respectively. These indicate areas of weakness in its overall performance and stability.
Hudson Pacific Properties (HPP)
Hudson Pacific Properties (NYSE:HPP) stands on shaky ground. Despite the general resilience of commercial property REITs, HPP faces acute financial distress marked by an Altman Z score of 0.25. T
his is reflected in the declining revenues of its office segment and the escalating operating expenses in its studio segment. The company’s challenges are further compounded by falling occupancy rates. Further, a major number of leases are approaching expiration, signaling potential drops in future sales.
The evolving work-from-home trend continues to impact HPP’s office portfolio and undermines its performance negatively. Additionally, the recent Hollywood union strikes have created major headwinds for its sound stages and film/TV production facilities portfolio. Despite a brief uptick in HPP stock following my bearish outlook, the company is witnessing a reversal of fortunes, generating a negative 4.3% return.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.