These Were The Best Performing REITs in May 2023
In any stock, exchange-traded fund (ETF) or mutual fund prospectus, an investor is likely to come across the phrase "past performance is no guarantee of future results.” You should never assume that an investment will continue to perform well just because it's done so in the past.
Events can change the direction of a stock overnight. A company could miss earnings estimates, be downgraded by a well-known analyst or be hit with an expensive lawsuit. A successful CEO announcing their retirement also could have an impact.
Even the best-performing stock can retrace its gains simply because it’s short-term overextended. Those who try to chase a runaway price may find themselves buying a stock just before it pulls back 5% or 6%.
However, longer-term, stocks tend to continue moving in a directional trend and those that show strong relative strength versus their peers will often continue to lead the group, even if they pull back before continuing an uptrend. One strategy for finding long-term winners is to consider purchasing stocks that have recently outperformed their peers.
Take a look at the three best-performing real estate investment trusts (REITs) over the month of May and the reasons that each demonstrated such strong performances.
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Modiv Inc. (NYSE:MDV) is a Reno, Nevada-based, diversified commercial REIT with 56 triple-net-leased industrial and retail single-tenant properties across 16 states. Its tenants include Dollar General, Costco and 3M. Its current occupancy rate is 100%.
On May 15, Modiv reported its first-quarter operating results. Adjusted funds from operations (AFFO) of $0.30 was up from $0.29 in the first quarter of 2022. Revenue of $10.31 million was up from $9.65 million in the first quarter of 2022 but missed the street estimate by $490,000.
On May 18, EF Hutton analyst Gaurav Mehta reiterated his Buy rating on Modiv and maintained a $17 price target. At the time, Modiv was trading near $14, so that price target represented a 21% potential price hike.
During May, Modiv led all REITs with a return of 27.18%.
Ashford Hospitality Trust Inc. (NYSE:AHT) is a Dallas-based hotel REIT that focuses on upscale full-service and select-service hotels. Ashford Hospitality Trust is externally advised by Ashford Inc. (NYSEAMERICAN: AINC).
As of March 31, Ashford Hospitality had 22,316 rooms in 100 hotels across 26 states. Its top markets include Washington, D.C./Northern Virginia; Nashville, Tennessee; Atlanta; Los Angeles; and Dallas-Fort Worth. Ashford Hospitality’s brands include Hilton, Marriott, Hyatt, Courtyard, Embassy, Sheraton and others.
On May 1, after the closing bell, Ashford Hospitality announced its first-quarter operating results. First-quarter FFO of $0.19 was far ahead of estimates for $0.15 and was up from $0.04 in the first quarter of 2022. Revenue of $328.89 million beat the consensus estimate by over $27 million and was 33.08% higher than revenue of $247.14 million in the first quarter of 2022.
Hotel REITs in general did well this month, as increasing occupancy and higher revenue per available room (RevPAR)) rates were catching Wall Street’s interest again. Ashford Hospitality Trust’s first-quarter RevPAR was 30% above RevPAR in the first quarter of 2022. It’s not surprising that Ashford Hospitality Trust gained 19.71% in May.
Creative Media & Community Trust Corp. (NASDAQ:CMCT) is a Dallas-based office REIT that focuses on acquiring, operating and developing premier office, hotel and multifamily residential properties in fast-growing communities. Many of its 13 properties are located in Texas and California. Creative Media & Community is externally managed by CIM Group.
Creative Media & Community gained 13.64% in May.
There are some interesting events, including a number of insider purchases at Creative Media & Community that have been pushing the shares higher. In April, its board of directors received a written offer from Daniel Negari, the founder and CEO of XYZ, to acquire Creative Media and all of its outstanding stock shares at $8.88 per share, well above the previous day’s closing price of $4.23.
In addition to being critical of the Board’s recent capital allocation decisions, Negari also wrote that he intends to evaluate all of his options and take appropriate action if he does not receive a favorable response to his proposal.
Later that same day, EF Hutton analyst Mehta maintained his Buy rating on Creative Media and raised the price target to $7.
On May 2, Creative Media posted its first-quarter earnings, and they weren’t very good. FFO of negative $0.56 was well below the FFO of negative $0.12. However, revenue of $28.91 million beat the estimates of $26.1 million and was 16.67% better than revenue of $24.78 million in the first quarter of 2022.
On May 3, EF Hutton analyst Mehta reiterated the Buy rating and $7 price target on Creative Media.
On May 8, Creative Media’s board of directors unanimously determined that Negari’s offer of $8.88 per share substantially undervalued Creative Media and was not credible because of a lack of committed financing.
Between May 3 and May 25, Chief Investment Officer Shaul Kuba and directors Richard S. Ressler, Marcie L. Edwards and Avraham Shemesh purchased a total of 715,430 shares of Creative Media among them, at various prices between $4.37 and $5.12. These were the first insider purchases in many months.
Investors can only speculate as to what this means but one thing that can be said is that Creative Media has recently been getting a lot more attention.
Two other REITs that performed quite well in May were Urstadt Biddle Properties Inc. (NYSE:UBP) and Necessity Retail REIT Inc. (NYSE:RTL), rising by 19.71% and 11.8%, respectively. This was a result of both REITs being acquired by other REITs for prices above the share prices at the time of the transactions.
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