GNL - REITs Smacked Down

2023-05-24 18:02:06 ET

Summary

• The sector got pounded hard today.
• The biggest decliners fell over 10%.
• Brief commentary on each stock.
• Several losers. A few great contrarian picks, though.

It's a beautiful day for investors looking for a sale, but carnage for everyone else.

My Purchase

I took the opportunity to add some cash to my portfolio and increase one of my positions:

SBA Communications ( SBAC ) is a tower REIT. There's quite a bit of debate about the future of the sector. The brief version is simple:

Verizon ( VZ ) and AT&T ( T ) wasted tens of billions on dumb ideas. They were still paying out big dividends, so dumb ideas and debt went together. Now they're burdened by huge loads of debt. To save cash, they can cut back on improving their networks. After all, consumers already are thrilled with America's best-on-earth wireless speeds :

Speeds in the United States were either so fast they couldn't be measured, or someone must have spelled it wrong. Right? There's an alternative explanation, though. Perhaps consumers are just getting shafted on speeds? Actually, that makes quite a bit of sense. According to Speedcheck.org's 5G speed index , the median speed in the United States was 59.05 Mbps. However, if we reject the median and only use the top 10%, then it soars to 338 Mbps.

That would rocket us up the chart, but the chart is about a year old. The other countries were also getting faster. Using the top 10%, the United States comes in at 17th. That would be very close to the top! Well, if there were a page for the " next best 15" it would be near the top of that page.

Getting Wrecked

I love using Seeking Alpha's "Portfolio" feature. They didn't ask me to say that or offer any bonuses, though I will get paid for the article (regardless).

Here's what I do with it:

1. Throw in a bunch of stocks I want to track together.
2. Sort the portfolio by the % change.
3. Create an article title.
4. Write about what I see.
5. Get paid.

That's a great system. Thank you for contributing to it.

One of the batches I use contains the BDCs we cover (or most of them) and almost all the REITs based in the United States. It may also have a few stocks that changed classification. I don't babysit this tool.

Sorting the list for the biggest flops gives me the following results:

Great, we can talk about shares that got stomped. There are a few reasons for that:

1. It's fun to write.
2. It's fast to write.
3. Readers love it.

Stock One

Power REIT ( PW ) is a teeny tiny piece of junk. Just a reminder, but everything here is just my opinion. Don't take it too factually. I'm not suggesting that the stock is actually something sold at department stores.

Let's take a look at the rating history and see if anyone actually called this:

Note: The ratings next to articles are a premium feature.

Unfortunately, we can't see what the price was when each of those pieces was published. However, I put together a table using the opening price for each day. If the market was closed that day, I used the prior date. This clearly isn't perfect, but it's good enough.

That Strong Sell turned out great. When someone posts a strong sell, and the price is down 90%, they win. That's just a rule of Internet stock analysis. I made it up.

However, I also want to highlight that there were some great ratings in 2019. While the total price action since then has been terrible, those buy ratings below $10 on a stock that made it past $70. Neither of those analysts ever wrote a primary-ticker article on the stock again, so it's not like they were perma bulls.

The price history is wild:

Stock Two

Global Net Lease ( GNL ) comes in second. GNL announced a brilliant deal. They will buy The Necessity Retail REIT ( RTL ). This is a merger where both companies are externally managed:

• GNL was managed by Global Net Lease Properties, LLC.
• RTL was managed by Necessity Retail Properties, LLC.

In what is surely a remarkable coincidence, both of those managers are controlled by AR Global Investments, LLC.

I previously bashed on GNL:

While GNL is having a terrible day, RTL is up an impressive 21.1% on the day!

When I was bashing GNL, I wrote:

If they don't succeed, GNL is on the road to another dividend cut. They "could" maintain the dividend for a while, but consensus estimates for AFFO are garbage. You can be suspicious right away because the consensus analyst estimates call for the trend lower to suddenly reverse next year. Why would it reverse? I treat these cases as "guilty until proven innocent."

I followed it with this awesome chart for AFFO per share consensus estimates:

Let's update that chart to have today's values:

I doubt those consensus estimates are already updated for the merger, but I didn't happen to check them yesterday.

You'll notice that the expectations for 2023 are now substantially worse. The start of the "recovery" also has been pushed out to 2024. One of the factors I projected to significantly reduce AFFO per share was interest expense. I felt the consensus estimates on interest expense were far too low. I didn't do anything particularly hard. I just looked at the floating rate debts and the debt maturities and estimated the impact of adjusting those rates.

Stock 3 and Stock 5

I'm lumping Franklin Street Properties ( FSP ) and City Office REIT ( CIO ) into a duo here. Why? Because I trashed both of these REITs in the greatest article ever on Seeking Alpha . Easily worth a read. More entertaining than this piece because authors could use memes back then.

It had some great sections, like this:

What happened to FSP's dividend?

From a quarterly dividend of $.09 per share to only $.01 per share.

How about CIO? I talked smack about them also:

So how did that turn out?

Who really cares about the difference between $.24 and $.10 anyway? With groceries getting cheaper every day, shareholders are going to be fine!

We can congratulate both of these companies for making it through the pandemic in vastly better form than they made it through the last year.

Of course, I did actual math to back up my claims:

Seriously, I consider it one of the best articles ever hosted on the site.

Now it's time for another REIT.

Stock 4

Uniti Group ( UNIT ) was the infrastructure REIT for investors who didn't want to buy American Tower ( AMT ), Crown Castle International ( CCI ), or SBA Communications ( SBAC ).

You can see the incredible correlation in their performance in the chart for total returns:

Outstanding. It was truly a much different stock than the others.

Stock Six

Would you believe I don't have any public articles on Ashford Hospitality Trust ( AHT )?

How could I miss out on this winner?

Actually, I did write about AHT. It's behind the paywall through. The article was Quick Summaries of Equity REITs with High Risk Ratings . That was published on June 28, 2019. That put AHT around $285 to $294 per share. A good call to just not buy that.

Ratings

Before I go, I want to take the opportunity to post a few ratings.

I increased my position in SBAC today. Obviously, I think that's a bargain. I wouldn't have bought it otherwise. I also think AMT and CCI are deep in the bargain territory. I haven't bought into the dystopian future where cell phone speeds plummet as more devices are forced onto a network that is growing much slower than the demand for data.

Expect data demand to continue growing at a compound annual rate of around 20% per year. If you enjoyed this on your phone, you already helped by loading all those images. Unless you're on WiFi. Remember when we all cared about getting on WiFi? Now it doesn't matter because we can just use the mobile network and it's massively faster.

Yours isn't massively faster? Well, you've demonstrated why we need more equipment. As it stands, multiple tower REITs have reported that about half of their towers have started installing 5G. That's it. Only half so far, and that's only starting 5G, not finishing it. We will need much more bandwidth to deal with the growing demand.

Conclusion

It's been a rough day for the sector. There were very few REITs posting a gain on the day. Good and bad plunged together. That's quite different from yesterday. Yesterday (Tuesday) we saw several dreadful REITs posting the biggest gains, while high-quality REITs saw the biggest dips.

For further details see: