Real estate companies are doing relatively well as many of them continue navigating the much-talked about wall of maturities well and as the Federal Reserve points to interest rate cuts.
The Vanguard Real Estate ETF (VNQ) surged to a high of $97.2 on Wednesday, 42% above its lowest level in 2023. It has jumped by over 14% this year, beating the SPDR Dow Jones ETF (DIA), which has risen by about 10%.
Other real estate-focused funds have also done well since low interest rates will lower their borrowing and refinancing costs. This article looks at two popular REITs: Medical Properties Trust (MPW) and Alexandria Real Estate Equities (ARE).
Medical Properties Trust | MPW
Medical Properties Trust is a leading REIT that has become popular, for the wrong reasons, recently.
It is the biggest owner of hospital real estate companies in the United States. After buying these properties, the company works to generate consistent revenue from the hospital operators.
In theory, the hospital industry is a relatively secure one because of the growing American population that is continuing to age. The industry is also supported by Medicare/Medicaid, which spend trillions each year.
However, Medical Properties Trust has come under pressure because of a few problematic clients who struggled to pay rent: Prospect and Steward Healthcare. Steward filed for bankruptcy a few months ago.
This week, Judge Christopher Lopez gave the two companies provisional approval for a deal where MPW will take over Steward’s hospitals and fund all expenses. As part of the agreement, Steward will drop all claims against MPW and continue selling its Florida operations. These funds will be used to pay lenders and creditors.
Steward has been selling its operations, including its Wadley Regional Medical Center in Texas to Christus Health.
MPW has also struggled because of the ongoing high-interest rate environment. In this, the company found itself in a mismatch of its leases and the average duration of the debt used to finance these deals, in most cases, over 15 years. As a result, it decided to cut its dividend again.
Medical Properties Trust stock has done well this year, rising by over 80% from its lowest point in January. This performance is mostly because investors believe that the management is doing well turning around the company.
However, many investors are unconvinced about its future and have placed short positions, giving it a short interest of almost 40%.
On the positive side, the company has formed an ascending channel and moved above the 50-day moving average. It is also attempting to make a clean break above the 23.6% retracement point.
However, the risk is that the company has formed a head and shoulders chart pattern, a popular bearish sign.
Therefore, in this case, a break below the neckline at $4.33 will point to more downside. On the other hand, more gains will be confirmed if the stock rises above the right side of the H&S pattern at $5.30.
Alexandria Real Estate | ARE
Alexandria Real Estate is one of the biggest REITs in the United States with over $20 billion in valuation. It also has a strong track record as its price return since going public has been over 430%. Total returns, including dividends has been higher.
Alexandria is significantly different from MPT because it focuses on life science and agricultural technology. It counts some of the biggest players in the pharmaceutical industry like Roche, Illumina, Bristol-Myers Squibb, Sanofi, and Eli Lilly as customers.
By having blue-chip customers, Alexandria avoids the rent issues that Medical Properties has faced. Most of these companies also have long leases and rarely move to other properties.
Like other REITs however, it has gone through a rough patch because of high interest rates and the view that it was overvalued. It dropped from a high of $204 in 2021 to a low of $88 earlier this year.
Now, with interest rates set to start coming down, the company could benefit substantially since it has become quite cheap. It trades at a price price to funds from operations (P/FFO) metric of 12, which is lower than its historical standards. The company’s dividend yield has also become more attractive at 4.34%.
ARE stock technical analysis
Most notably, ARE stock has some interesting technicals. On the weekly chart, it has risen above the 23.6% Fibonacci Retracement point. It has also flipped the key 50-week Exponential Moving Average (EMA).
Most importantly, Alexandria Real Estate has formed what looks like a bullish flag chart pattern shown in green. In most cases, this is one of the most important bullish patterns in the market.
It also seems like it has formed a falling wedge chart pattern, which is a popular bullish sign. Therefore, the stock may soon have a bullish breakout as bulls target the next key resistance point at $130, the 38.2% retracement point.
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