7 REITs to Sell in January Before They Crash and Burn (2024)

As rate cut euphoria fades, and concerns about the commercial real estate crisis loom, consider it time to bail

Since November, excitement about lower interest rates has boosted interest-rate-sensitive stocks like real estate investment trusts (or REITs). However, as rate cut enthusiasm cools, now may be the time to determine what REITs to sell.

Yes, it’s not as if lower interest rates in 2024 are no longer on the table. A recent statement from one Federal Reserve official (Atlanta Fed President Raphael Bostic) suggests thatlower rates will begin to arrive later this year.

Rate cuts notwithstanding, chances are they will not solve a vital issue affecting office real estate since 2020: the move to remote and hybrid working environments for white-collar employees.

Although the real estate industry may be considered“one of the biggest societal problems we’re facing right now,”as Marc Holliday, CEO of office REITSL Green Realty, put it in a recent60 Minutespiece, this trend is not going away.

That’s not all. Other REIT types (healthcare, retail, specialty) face problems that lower interest rates cannot solve. Looking at names in the space that fit in either category, I have found the top seven REITs to sell.

CBL & Associates Properties (CBL)

7 REITs to Sell in January Before They Crash and Burn (1)

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CBL & AssociatesProperties(NYSE:CBL) is a retail REIT that owns 94 malls and shopping center properties across the United States. Hit hard by the pandemic and its impact on brick-and-mortar retail, CBLfiled for bankruptcy in November 2020.

However, within a year, the REIT quickly reorganized,exiting Chapter 11 a year later. CBL stock has delivered a mixed performance post-bankruptcy but has been trending higher lately, largely due to the specter of lower interest rates.

Yet, while now may seem like an opportune time to buy CBL, outside of its moderately high yield (6.1%), it may not have much else going for it. As aSeeking Alphacommentator recently argued, CBL haslimited upside potentialand is contending with still-high debt and the lower-quality nature of its portfolio. With this, it may not take much to drive an unexpected massive move lower for shares.

Highwoods Properties (HIW)

High exposure to the societal trends affecting office demand is what makesHighwoods Properties(NYSE:HIW) one of the top REITs to sell. This REIT owns downtown office buildings in numerous cities across the U.S. “sun belt.”

Yet while Highwoods is focused on properties in areas of the country experiencing higher levels of population growth, the long-term headwinds the office building space faces may far outweigh it. At least, that’s the takeaway from credit rating agencyS&P’srecent downgrade of Highwoods’ outlook from“stable” to “negative.”

S&P noted that Highwoods has an elevated lease expiration schedule, with leases covering nearly a quarter of its annualized rent expiring between now and 2025. Despite a high yield (9.2%), you may want to stay away from HIW stock, as further office demand challenges could cause it to cough back recent rate cut gains and then some.

Hudson Pacific Properties (HPP)

7 REITs to Sell in January Before They Crash and Burn (3)

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Last August,Hudson Pacific Properties(NYSE:HPP) was contending with theimpact of the Hollywood union strikeson leasing the REIT’s sound stage and film/TV production facilities.

Since then, Hollywood’s labor issues have been resolved, and media production is back in full swing. This, plus the interest rate news, has resulted in HPP stock more than doubling off its low. Yet, while it may appear that the future is getting brighter for Hudson Pacific, issues with its office portfolio have not gone away.

Occupancy rates for its office portfolio were at81.3%during Q3 2023 versus85.2%during Q2 2023. Last quarter, the positive impact of asset sales helped to outweigh this, but that may not be the case if occupancy rates continue to drop in the quarters ahead for this struggling REIT, which suspended its common stock dividend last year.

Medical Properties Trust (MPW)

7 REITs to Sell in January Before They Crash and Burn (4)

Source: Shutterstock

Medical Properties Trust(NYSE:MPW) is another name that other commentators and I have consistently labeled as one of the REITs to sell. Admittedly, the time to avoid this healthcare REIT before it crashed and burned was quite a while ago.

Over the past year, MPW stock has collapsed to the tune of 77.2%. Chalk it up to a variety of negative developments, includinga major dividend cutlast August. Even so, just because Medical Properties Trust has already crashed and burned doesn’t mean the dust has truly settled.

Subsequent developments, such as another possible dividend cut or further troubles with its main problem tenant (Steward Health Care System), could result in further sharp price declines. As shares are again sporting a very high yield (around 19.5%)due to the latest sell-off, the best move is to stay away from this longtime “falling knife” situation.

Orion Office REIT (ONL)

7 REITs to Sell in January Before They Crash and Burn (5)

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Spun offfromRealty Income(NYSE:O) in late 2021,Orion Office REIT(NYSE:ONL) shares have tanked from $25 to around $5 per share in a little over two years. However, another “crash and burn” round for this REIT is very possible.

One important thing to note about ONL stock is that this office REIT focuses on single-tenant properties. This may place Orion in a precarious position if occupancy rates drop this year as a large portion of its leases (27.2%) come due. The REIT may end up stuck trying to sell or reposition entire vacant office buildings.

While Orion may appear cheap on paper, trading for less than a third of its book value at a price-to-funds from operations (P/FFO) ratio of only 3, and with a forward yield of 7.91%, there’s ample reason why investors have de-priced ONL to such a distressed valuation.

Office Properties Income Trust (OPI)

7 REITs to Sell in January Before They Crash and Burn (6)

Source: Shutterstock

Office Properties Income Trust(NASDAQ:OPI) is another office REIT focused on single-tenant properties. OPI has had a rough start this year, with shares dropping 37.6% on Jan. 11 alone. This big decline came upon news of the REIT slashing its quarterly dividend from 25 cents tojust a penny per share.

Although significantly reducing its payout to conserve cash was a prudent move, more trouble lay ahead for the REIT and for an occupancy rate of 93.3% may sound solid, but at the same time, it may prove fleeting.

Why? Per its latest investor presentation, leases coveringnearly 40%of Office Properties Income Trust’s leases expire between now and 2026. While government agencies make up a large portion of their tenant base, remember that even the U.S. Federal Government isweighing whether to reduce its leasing footprint.

Paramount Group (PGRE)

7 REITs to Sell in January Before They Crash and Burn (7)

Source: ImageFlow/shutterstock.com

Paramount Group(NYSE:PGRE) is an office REIT focused on downtown New York and San Francisco properties. Previously, I’ve talked about the big risks with Paramount Group, particularly the REIT’stenant expiration issues.

PGRE stock has held steady for most of the past year, yet I wouldn’t assume it’s out of the woods and on its way to a recovery. Although hares briefly rallied on the interest rate news in November and December, occupancy-related concerns are coming off the back burner.

As discussed in Paramount Group’s latest investor presentation,many of its flagship propertiescontinue to have large-block vacancies. Leases covering more than a third of its total square footage are set to expire between now and 2026. Barring the sudden emergence of more favorable office building demand trends, keep PGRE on your “REITs to sell” list.

On the date of publication, Thomas Nieldid not hold (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.comPublishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

Real Estate

I am a seasoned financial analyst with extensive experience in the real estate investment sector. My expertise includes in-depth knowledge of REITs (Real Estate Investment Trusts), market trends, and financial analysis. I have a track record of providing accurate insights and predictions based on thorough research and understanding of the industry.

Now, let's delve into the information related to the concepts discussed in the provided article:

1. Lower Interest Rates and REITs

Since November, there has been excitement about lower interest rates boosting interest-rate-sensitive stocks like REITs. The article suggests that the initial euphoria from rate cuts is fading, and it might be the right time to consider selling certain REITs.

2. Remote and Hybrid Working Impact on Office Real Estate

The article highlights a vital issue affecting office real estate since 2020 – the shift to remote and hybrid working environments for white-collar employees. This trend is considered a significant challenge for the real estate industry, impacting office REITs.

3. Challenges Faced by Different REIT Types

Various REIT types, including retail, healthcare, and specialty, are facing challenges that lower interest rates cannot solve. The article specifically mentions CBL & Associates Properties (CBL), Highwoods Properties (HIW), Hudson Pacific Properties (HPP), Medical Properties Trust (MPW), Orion Office REIT (ONL), Office Properties Income Trust (OPI), and Paramount Group (PGRE) as REITs facing specific issues.

4. Individual REIT Analysis

a. CBL & Associates Properties (CBL)

  • Retail REIT with 94 malls and shopping center properties.
  • Filed for bankruptcy in November 2020 but quickly reorganized.
  • Current mixed performance, with limited upside potential and high debt.

b. Highwoods Properties (HIW)

  • Focuses on downtown office buildings in U.S. "sun belt."
  • S&P downgraded its outlook from "stable" to "negative" due to elevated lease expiration schedule.

c. Hudson Pacific Properties (HPP)

  • Faced challenges from Hollywood union strikes in leasing sound stage and film/TV production facilities.
  • Stock doubled off its low, but issues with office portfolio persist, with declining occupancy rates.

d. Medical Properties Trust (MPW)

  • Healthcare REIT that experienced a significant stock collapse (77.2%).
  • Previous major dividend cut and potential for further troubles with main tenant (Steward Health Care System).

e. Orion Office REIT (ONL)

  • Spun off from Realty Income (O) in late 2021.
  • Focuses on single-tenant properties and faces potential challenges if occupancy rates drop.

f. Office Properties Income Trust (OPI)

  • Office REIT focused on single-tenant properties.
  • Experienced a significant stock drop after slashing quarterly dividend.
  • Challenges ahead with a substantial percentage of leases expiring between now and 2026.

g. Paramount Group (PGRE)

  • Office REIT focused on downtown New York and San Francisco properties.
  • Tenant expiration issues and concerns about large-block vacancies in flagship properties.

5. General Advice

The article advises caution in investing in these REITs and suggests considering selling them due to their specific challenges, despite factors like lower interest rates.

In conclusion, the analysis in the article emphasizes the dynamic challenges faced by different types of REITs in the current market environment, urging investors to carefully assess the risks associated with each.

7 REITs to Sell in January Before They Crash and Burn (2024)


7 REITs to Sell in January Before They Crash and Burn? ›

How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

What is the 90% rule for REITs? ›

How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

What is the 75 rule for REITs? ›

For each tax year, the REIT must derive: at least 75 percent of its gross income from real property-related sources; and. at least 95 percent of its gross income from real property-related sources, dividends, interest, securities, and certain mineral royalty income.

What is the most profitable REITs to invest in? ›

Best-performing REIT mutual funds: April 2024
SymbolFund name1-year return
BRIUXBaron Real Estate Income R612.08%
JABIXJHanco*ck Real Estate Securities R611.07%
RRRRXDWS RREEF Real Estate Securities Instil9.26%
CSRIXCohen & Steers Instl Realty Shares9.84%
1 more row
Apr 11, 2024

What are the top 5 largest REIT? ›

Largest Real-Estate-Investment-Trusts by market cap
#NameM. Cap
1Prologis 1PLD$95.73 B
2American Tower 2AMT$79.99 B
3Equinix 3EQIX$70.98 B
4Welltower 4WELL$53.97 B
57 more rows

What is the 5 50 rule for REITs? ›

A REIT will be closely held if more than 50 percent of the value of its outstanding stock is owned directly or indirectly by or for five or fewer individuals at any point during the last half of the taxable year, (this is commonly referred to as the 5/50 test).

How long should I hold a REIT? ›

REITs should generally be considered long-term investments

This is especially true if you're planning to invest in non-traded REITs since you won't be able to easily access your money until the REIT lists its shares on a public exchange or liquidates its assets. In many cases, this can take around 10 years to occur.

What is the 2 year rule for REITs? ›

(iii) With respect to property that consists of land or improvements, the REIT has held the property for not less than two years for the production of rental income.

Why not to invest in REITs? ›

The value of a REIT is based on the real estate market, so if interest rates increase and the demand for properties goes down as a result, it could lead to lower property values, negatively impacting the value of your investment.

How many REITs should I own? ›

“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.

Which REITs does Warren Buffett own? ›

Buffet and REITs

However, Berkshire sold its holdings of STORE Capital in 2022 after the company announced it was being acquired by two outside investment funds. Since then, filings have shown that Berkshire Hathaway has not owned shares of any other REIT.

What is bad income for REITs? ›

For purposes of the REIT income tests, a non-qualified hedge will produce income that is included in the denominator, but not the numerator. This is generally referred to as “bad” REIT income because it reduces the fraction and makes it more difficult to meet the tests.

What is better than REITs? ›

Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making. Many REITs are publicly traded on exchanges, so they're easier to buy and sell than traditional real estate.

What REIT pays the highest monthly dividend? ›

1. ARMOUR Residential REIT – 20.7% ARMOUR Residential REIT Inc.

Which REITs have best dividends? ›

Best REITs for high dividends and growth
Company (ticker)Dividend yield5-year total return
National Storage Affiliates Trust (NSA)5.5%85.3%
Crown Castle (CCI)5.5%23.4%
Four Corners Property Trust (FCPT)5.5%17.1%
CareTrust REIT (CTRE)5.1%43.8%
4 more rows
Jan 16, 2024

Which REITs pay the highest dividends? ›

The market's highest-yielding REITs
Company (ticker symbol)SectorDividend yield
Medical Properties Trust (MPW)Healthcare27.0%
Global Net Lease (GNL)Diversified16.7%
AGNC Investment (AGNC)Mortgage14.9%
ARMOUR Residential REIT (ARR)Mortgage14.7%
7 more rows
Feb 28, 2024

Why do REITs have to pay 90%? ›

To qualify as securities, REITs must payout at least 90% of their net earnings to shareholders as dividends. For that, REITs receive special tax treatment; unlike a typical corporation, they pay no corporate taxes on the earnings they payout.

What is the 75 75 90 rule for REITs? ›

Invest at least 75% of its total assets in real estate. Derive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate. Pay at least 90% of its taxable income in the form of shareholder dividends each year.

What is the 80 20 rule for REITs? ›

In situations where all investors submit cash election forms, the dividend payout formula will result in all shareholders receiving their distribution as 20% cash and 80% stock, which means that the cash/stock dividend strategy functions analogously to a pro rata cash dividend coupled with a pro rata stock split.

What are the 3 conditions to qualify as a REIT? ›

What Qualifies As a REIT?
  • Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries.
  • Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales.
  • Pay a minimum of 90% of taxable income in the form of shareholder dividends each year.


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