REITs rocked by new hike in target price cuts - is there more progress?

Investors know the pain of seeing some of their stocks crash after an analyst downgrade, but stocks can also fall when analysts maintain previous ratings but cut previous stock price targets by 10% or 20%.

As Wall Street grapples with minutes from the Federal Reserve’s latest meeting suggesting an imminent rate hike, large groups of analysts have lowered price targets on interest-sensitive stocks such as REITs.Real estate investment funds). Over the past week, 18 price targets have been cut across multiple sectors, with no reversal in sight. An approximately equal number of price targets were also cut from the previous week.

In fairness, an equal number of target price increases occurred last week, but 13 of the 18 originated with just three analysts: JPMorgan’s Anthony Paulone, Evercore ISI’s Steve Sacco and Bank of America Securities’ Craig Schmidt. Price hikes affected only three sub-segments – Pauloni raised targets for four residential REITs, Saccoa raised targets for seven office REITs, and Schmidt raised targets for two retail REITs.

In contrast, 12 analysts cut price targets in seven REIT sub-segments. Of the 18 rate cuts, 15 were on REITs where the analyst maintained the previous rating, and three were on new cuts.

Given the recent interest rate news, coupled with weakness in the REIT sector, further cuts in target prices could negatively affect REIT prices for the remainder of 2023.

The chart below shows REITs whose price targets were cut this week. Note the number of different analysts and different subsectors involved:

stock	Code	Price change	subsector	analyst	brokerage
Sun Communities Corporation	but	$160 – $150	residential	Aaron Hecht	GMB Securities
Eastern Government Real Estate Company	DEA	$15 – $13	office	Michael Carroll	RBC Capital Markets
UDR Corporation	doctor	$45 – $43	residential	Michael Bellerman	Citigroup
JBG Smith Properties	GPGS	$16 – $15	office	Steve Sacco	Evercore ISI Group
Alexandria Real Estate Stocks	We are	$137 – $135	office	Steve Sacco	Evercore ISI Group
Sun Communities Corporation	but	$157 – $148	residential	Anthony Howe	Trust Securities
American Strategic Investment Company	New York City	$10 – $8	office	Brian Maher	B. Riley Securities
Trust Company for Medical Properties	MPW	$9 – $7	health care	Michael Stones	JPMorgan
Al Ettifaq Real Estate Company	ADC	$77 – $74	Tri-net segmentation	Ki Bin Kim	Trust Securities
Safehold Corporation	security	$31 – $24	miscellaneous	Ki Bin Kim	Trust Securities
He entered the apartment REIT Corp.	AIRC	$41 – $39	residential	Anthony Paulone	JPMorgan
UDR Corporation	doctor	$49 – $44	residential	Anthony Paulone	JPMorgan
Trust Company for Medical Properties	MPW	$12 – $10	health care	Steve Valikit	Barclays
American Tower Company	died	$211 – $205	specialty	Rick Prentice	Raymond James
Crown Castle Company	CCI	$128 – $126	specialty	Rick Prentice	Raymond James
SPA Telecom Company	plumber	$297 – $285	specialty	Rick Prentice	Raymond James
Federal Real Estate Fund	FRT	$125 – $124	Tri-net segmentation	Jeffrey Spector	b of stock
Regency centers	reg	$79 – $74	selling by pieces	Jeffrey Spector	b of stock

For investors who own any of these shares, the question becomes: Should they keep the shares, sell them, or buy more? There is no simple answer, as individual risk tolerance, income needs, and purchase price will vary among investors. someone bought American Tower Company (NYSE:AMT) at $100 might react very differently to a price target cut than someone who bought the stock at $205.

If the person is strictly an income investor, and if the REIT does not cut or cancel dividends, there is no reason to panic sell when prices drop. Only the income generated each month or quarter matters. If the dividend yield is much greater than the yield on shares already owned, this may be a good opportunity for the investor to add to his or her existing shares.

Another question to consider is whether the underlying fundamentals of the stock have changed. A higher interest rate environment may lead to lower stock prices, but the economic climate can change in a few months. This is different from a company that has lost the competitive advantage it once enjoyed or whose management has changed for the worse.

Investors should keep in mind that analysts are only right about 50% of the time, so investors should always do their due diligence and never rely on an analyst’s opinion alone in making investment decisions.

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