Generally, with high inflation, housing, and other real estate asset prices rises. However, the consequent rise in mortgage rates tends to put downward pressure on demand for real estate as debt becomes expensive.
Given the current macroeconomic backdrop of high inflation and interest rate hikes, we think Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI), Equity Commonwealth (EQC), and Farmland Partners Inc. (FPI) might be best avoided now, considering their bleak fundamentals.
Concerns about the banking system have claimed real estate investment trusts, or REITs, as their most recent sufferer. The sector, which is popular among investors due to its strong dividend payouts, has dropped over 10% in March. Office REITs saw their stock valuations fall by roughly 24% on average during the month, making it the sector’s worst-performing industry.
Tom Hainlin, national investment strategist at U.S. Bank, said, “Although REITs are often considered a way to hedge the risk of higher inflation, the unfavorable interest rate environment resulted in REITs underperforming other parts of the equity market. Improved yields on U.S. Treasury securities create cash flows that look much more attractive in today’s market.”
Let’s discuss the stocks mentioned above in detail.
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI)
HASI provides capital and services to the energy efficiency, renewable energy, and other sustainable infrastructure markets in the United States.
HASI’s trailing-12-month non-GAAP P/E of 13.56x is 55.6% higher than the industry average of 8.72x. Its trailing-12-month Price/Sales of 22.15x is 821.7% higher than the industry average of 2.40x.
For the fourth quarter of the fiscal year that ended December 31, 2022, HASI’s total expenses increased 36.9% year-over-year to $57.68 million. However, its net loss came in at $20.20 million, compared to a net income of $62.81 million in the year-ago period. Its loss per share came in at $0.22, compared to EPS of $0.71 for the same period the prior year.
Analysts expect HASI’s EPS to decrease 6.7% year-over-year to $0.56 for quarter ending June 2023. HASI has lost 42% over the past year to close the last trading session at $28.20.
HASI’s POWR Ratings reflect its bleak outlook. The stock has an overall D rating, which equates to a Sell in our rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
HASI has a D grade for Value and Sentiment. The stock is ranked #46 among 47 stocks in the D-rated REITs – Diversified category. Click here for additional ratings for HASI’s Growth, Stability, Momentum, and Quality.
Equity Commonwealth (EQC)
EQC is an internally managed and self-advised real estate investment trust. The Company is primarily engaged in the ownership and operation of office properties in the United States.
EQC’s trailing-12-month Price/Cash Flow of 34.41x is 187.2% higher than the industry average of 11.98x. Its trailing-12-month Price/Sales of 36.13x is 714.4% higher than the industry average of 4.44x.
EQC’s total expenses increased 5.7% year-over-year to $18.76 million for the fourth quarter of the fiscal year that ended December 31, 2022. However, its total liabilities came in at $31.15 million for the period that ended December 31, 2022, compared to $26.11 million for the period that ended December 31, 2021.
Also, its total assets came in at $2.85 billion, compared to $3.08 billion for the same period.
EQC’s revenue is expected to decline 25.1% year-over-year to $47.29 million in 2023. Its EPS is expected to decrease by 2% per annum for the next five years. The stock has lost 13.6% over the past year to close the last trading session at $20.43.
EQC’s POWR Ratings reflect its fundamental weakness. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. It has a D grade for Value and Sentiment. EQC is ranked #43 in the same category.
Beyond what we’ve stated above, we have also given EQC grades for Growth, Momentum, Stability, and Quality. Get all EQC ratings here.
Farmland Partners Inc. (FPI)
FPI is an internally managed real estate company that owns and seeks to acquire high-quality North American farmland and makes loans to farmers secured by farm real estate.
FPI’s forward non-GAAP P/E of 90.43x is 187.7% higher than the industry average of 31.44x. Its forward Price/Sales of 8.77x is 97.8% higher than the industry average of 4.44x.
For the fourth quarter of the fiscal year that ended December 31, 2022, FPI’s net income decreased 49.6% year-over-year to $6.71 million. Also, its EPS came in at $0.11, down 21.4% year-over-year.
Street expects FPI’s revenue to decline 125% year-over-year to negative $0.01 for the quarter ending June 2023. Over the past year, the stock has lost 24.3% to close the last trading session at $10.55.
FPI has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
It has a D grade for Growth, Value, and Sentiment. It is ranked last in the same category. We have also rated FPI for Momentum, Quality, and Stability. Get all the FPI ratings here.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
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HASI shares were trading at $27.58 per share on Wednesday afternoon, down $0.62 (-2.20%). Year-to-date, HASI has declined -3.48%, versus a 6.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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