If you’re an income investor, then you’re probably aware of the benefits of investing in real estate investment trusts, or REITs. But not all REITs are good buys. There are unfortunately several F-rated REITs to sell from which you need to steer clear.
REITs are popular with income investors because they have a structure that’s unique from traditional stocks. They don’t pay federal corporate income tax as long as they distribute at least 90% of their taxable income to shareholders as dividends.
That’s great for investors who are looking for a regular income stream.
The performance of REITs can be affected by the economy, of course. If you think corporations are going to continue to allow employees to work a hybrid or remote schedule, then office REITs probably aren’t a good pick. There are a couple on this list of f-rated REITs to sell.
During the Covid-19 pandemic, hotel and hospitality REITs took a big hit. Consumer confidence can affect residential REITs whether someone is going to own a home or rent. If they can afford to take on a mortgage or pay higher rent on a year-over-year basis.
While there are some fine REITs on the market, each of the equities on this list has some fatal flaws that help lower their grades to an “F” rating in the Portfolio Grader.
Extra Space Storage (EXR)
If you’re downsizing your home, closing down an office or just have too much stuff for your home, then you may use a facility owned by Extra Space Storage (NYSE:EXR).
After completing its merger with Life Storage in June, the Utah-based REIT is the largest storage operator in the U.S., with over 3,500 locations in 43 states.
You expect REITs to have a solid yield, but Extra Space Storage has a yield of less than 2%. The stock performance has been a disappointment, down nearly 14% this year, making it one of the f-rated REITs to sell before it’s too late.
Earnings for the second quarter missed on both top and bottom lines, coming in at $440.75 million in revenue and EPS of $1.50.
I think you can find REITs that will give you better performance. EXR stock has an “F” rating in the Portfolio Grader.
Gladstone Commercial Corporation (GOOD)
Gladstone Commercial Corporation (NASDAQ:GOOD) is an equity REIT, meaning it invests in and owns income-producing real estate.
Gladstone’s role is in single-tenant and anchored multi-tenant industrial and office properties.
The company has 136 properties in 27 states, stretching from Nevada to Massachusetts. Tenants include offices, drugstores, paper companies, industrial complexes and retailers.
Covid-19’s taken a toll on Gladstone, which is working on liquidating its office properties that underperformed so far in 2023 and is focusing on industrial buildings.
That helps explain why GOOD stock is down 28% so far this year. The dividend of 40% a year, paid quarterly, helps, with a yield of 9%. However, the stock gets an “F” rating in the Portfolio Grader.
Medical Properties Trust (MPW)
Medical and hospital REITs are another category of which you can invest. Medical Properties Trust (NYSE:MPW) is perhaps the biggest of these, with over 440 properties and 44,000 hospital beds.
The company operates in 10 countries—the U.S., the U.K., Germany, Switzerland, Spain, Italy, Portugal, Finland, Colombia and Australia.
But bigger isn’t better. Medical Properties Trust is sagging badly in 2023, down more than 40%, making it one of the f-rated REITs to sell ASAP.
The company was the focus of a blistering report in the Wall Street Journal in August that raised questions about the company’s finances.
Second-quarter earnings of $337.4 million were down 15% from a year ago, and missed analysts’ expectations for $348.4 million. Earnings per share was a disaster – analysts expected a profit of 20 cents per share and the company instead reported a loss of 5 cents per share.
The company also cut its dividend nearly in half, from 29 cents per quarter to 15 cents in an effort to build up cash. That’s not what income investors want to hear.
MPW stock gets an “F” rating in the Portfolio Grader.
Crown Castle (CCI)
Crown Castle (NYSE:CCI) can best be described as a telecom REIT. The company owns more than 40,000 cell towers, 85,000 miles of fiberoptic cable and 120,000 on-air or under-contract small cell nodes. The company claims to have a presence in every major market in the U.S.
The company reclassified as a REIT in 2014 for tax purposes, so you can expect to see oversized dividend payments, and CCI delivers with a 6.4% yield.
But why is it a bad REIT to buy? The answer is the headwinds facing the telecom industry these days.
For instance, the investment management company Carillon Tower Advisers issued a note of caution to investors in its second-quarter letter: “Crown Castle detracted from performance as telecom companies have temporarily slowed their deployment of additional cellular spectrum. This slowdown could impair future growth for cell tower companies.”
Analysts downgraded their outlooks for many telecom stocks this summer after reports that many companies own lead-covered cables, a source of potential liability.
CCI stock is down 27% this year and gets an “F” rating in the Portfolio Grader.
Power REIT (PW)
From its name alone, you may think that Power REIT (NYSE:PW) is somehow involved in the utility industry, leasing land to power plants or having ownership in utility lines, wells or pipelines. But you’d be wrong.
Power REIT is instead in the sustainable real estate business. The company has greenhouses, and solar farmland where it grows food and cannabis. It also has a wholly owned subsidiary, the Pittsburgh & West Virginia Railroad, that includes 132 miles of railroad leased to Norfolk Southern (NYSE:NSC).
But this hasn’t been a good year for Power REIT. Shares are down 65% this year. Revenue in the second quarter was only $217,000, a drop of 90% from a year ago. The company also lost $2.19 million in the quarter, or 69 cents per share.
And this is a REIT that doesn’t pay a dividend. Tt hasn’t issued a payout since January 2013. What’s the point of owning a REIT that doesn’t offer an incentive to income investors?
PW stock has an “F” rating in the Portfolio Grader.
Agree Realty (ADC)
Agree Realty (NYSE:ADC) is a Michigan-based retail REIT. The company has more than 2000 properties that include grocery stores, pharmacies, automotive retailers, used car lots, convenience stores and fast-food restaurants.
Agree also stands out on this list because instead of paying a quarterly dividend, it has a monthly payout. That could be enticing for investors wanting a consistent income stream, and the current payout is 4.8%.
But ADC also suffers from headwinds in the retail sector. Some commercial real estate is suffering from rising interest rates. Brick-and-mortar retailers are under significant pressure. And as the economy suffers, it’s reasonable to expect that some of these businesses working with ADC will also suffer.
Agree Realty stock is down 15% this year and gets an “F” rating in the Portfolio Grader.
Ashford Hospitality Trust (AHT)
Ashford Hospitality Trust (NYSE:AHT) is a hotel and hospitality REIT. The Dallas-based company owns full-service hotels in 25 states and the District of Columbia.
But not all is well in the hotel business, which suffered mightily during the Covid-19 pandemic. Even though travelers are returning, Ashford continues to have some struggles.
In July, Bloomberg reported that Ashford was planning to return 19 hotels to lenders, saving $225 million in required debt payments and $80 million in needed capital expenditures. The hotels weren’t performing well enough to cover the REIT’s 8.8% interest rate on the loans, Bloomberg said.
The company brought in revenues of only $375.5 million in the second quarter, up 8% from a year ago. And the stock price is down 32% in 2023.
Ashford is also one of those puzzling dividend stocks that don’t pay a dividend – this REIT hasn’t made a payment to investors since January 2020. For that and other reasons listed here, AHT gets an “F” rating in the Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
