It’s hard for investors when analysts downgrade their stocks. But there are many reasons for an analyst downgrade. Sometimes a stock has risen so much that the analyst believes it is no longer a good value relative to its price. At other times, competition, a perceived downturn in the general economy, or the resignation of a longtime insider who has known a company may lead the analyst to believe that a company is unlikely to perform well in the coming months.
Whatever the reason, the usual result of a downgrade is a decline in the stock price. But the decline could be temporary as the company develops new businesses, economic forecasts improve or new leadership proves its worth.
Take a look at three real estate investment trusts (REITs) that just received downgrades from analysts and some of the concerns that justified these decisions.
TPG RE Finance Trust Inc. (NYSE:TRTX), a subsidiary of TPG Real Estate, is a mortgage REIT with a portfolio of $4.2 billion of first mortgage loans with an average loan size of $71.6 million, in geographically diversified primary and select secondary markets in the U.S. .
On February 20, TPG RE Finance Trust reported its fourth quarter operating results. Adjusted earnings per share (EPS) of $2.05 was above the estimate of $0.17. Revenue of $31.49 million was higher than estimates of $24.73 million, but lower than fourth-quarter 2022 revenue of $35.99 million.
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Despite the less than favorable earnings report, earnings expectations were positive and investors continued to support the stock. Year-to-date, TPG RE Finance has achieved a total return of 16.33%.
On April 12, Raymond James analyst Stephen Laws downgraded TPG RE Finance Trust from Strong Buy to Outperform, while keeping the price target at $8.50. This is still above the consensus one-year average price target of $7.90.
Arbor Realty Trust Inc. (NYSE:ABR) is a Long Island-based mortgage REIT (mREIT) that originates bridge and mezzanine loans for commercial and residential real estate. Many of the loans come from Fannie Mae and Freddie Mac programs.
Arbor Realty Trust generates profits from the spread between the financing costs of the loan and the interest earned on that loan. Many of Arbor Realty Trust’s commercial loans are short-term first mortgage loans with higher interest rates.
Arbor Realty’s mid-February quarterly report was somewhat mixed. Adjusted earnings per share (EPS) of $0.51 beat the consensus estimate of $0.44 per share, but were 15% lower than fourth quarter 2022 earnings per share of $0.60. Revenue of $103.58 million also surpassed the consensus estimate of $97.65 million, but fell from $113.06 million in the fourth quarter. 2022.
On April 11, Wedbush analyst Jay McCanless downgraded Arbor Realty Trust from Outperform to Neutral and lowered the price target 23.5% from $17 to $13.
McCanless is concerned about the longer interest rates and the resulting risks Arbor Realty will face due to increased delinquencies and non-performing loans. He also sees opportunities for a lower loan volume. The analyst lowered the 2024 EPS estimate from $1.95 to $1.80.
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Clipper Real Estate Inc. (NYSE:CLPR) is a small, New York-based, self-managed and self-managed REIT that owns, manages, operates and repositions multifamily residential and commercial properties in the New York City area. It was founded in 2017.
On March 14, Clipper Realty reported fourth-quarter 2023 operating results. Funds from operations (FFO) of $0.15 per share beat the $0.13 per share estimate and represented a 36.36% increase over FFO of $0.11 per share in the fourth quarter of 2022. Revenue of $34.87 million was below the consensus estimate of $37.28 million, but slightly above revenue of $0.15 per share. $33.01 million in Q4 2022.
On April 11, JMP Securities analyst Aaron Hecht downgraded Clipper Realty from Market Outperform to Market Perform.
Hecht noted Clipper’s recent announcement as part of its fourth-quarter earnings report that it will lose its tenant at the 12-story 250 Livingston Street in Brooklyn at the end of its lease in August 2025. The tenant is the City of New York , and the annual rental price is 15.4 million dollars.
While that gives Clipper plenty of time to re-lease the space, the analyst also noted that the tenant in this 294,144-square-foot commercial and residential building accounts for approximately 15% of Clipper’s net operating income. This creates what Hecht called “tenant uncertainty,” and Hecht believes Clipper Realty is now fairly valued.
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This article Three REITs With New Downgrades This Week originally appeared on Benzinga.com
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