The old investing adage holds true for stocks, bonds and real estate, whether it be a bull market or bear market — “Buy low and sell high.” Because of recent weakness in the markets, investors may be led to believe that bargains may be available among real estate investment trusts (REITs) that are selling for less than $10 a share. In researching REITs, however, an investor will discover some very good reasons why these investments are so inexpensive.
Warnings about penny stocks and equities selling below $5 a share could also be made in connection with REITs selling below $10 a share. In researching REITs under $10, an investor will discover that most, if not all, will probably prove to be risky.
Two REITs selling for under $10 a share may be worth a second look. They both have their issues, but some value may be found. The two REITs are Broadmark Realty Capital, Inc. of Seattle, Washington and Franklin Street Properties Corp. of Wakefield, Massachusetts.
Broadmark Realty Capital Inc. (NYSE: BRMK). Closing price per share on Nov. 15, 2022 - $5.11. Trading range for the previous 52 weeks - $4.56 to $10.14 per share.
Broadmark is a commercial real estate finance company, that manages, services, funds and even underwrites short-term loans for construction or development. Broadmark also invests in both commercial and residential real estate.
On its website, the company states:
We invest our capital with savvy real estate developers, operators and owners throughout the United States, providing smart, reliable, rapid solutions across the entire debt capital stack, including senior fixed and floating rate loans, construction loans, bridge loans, as well as mezzanine and participating-preferred structures.
Broadmark’s current ratio is 55.73, with a book value of $8.49 per share. It pays an annual dividend rate of $0.84 per share, for a yield of 15.25%. The payout ratio is 142.37, so one may wonder how long the company will be able to payout such a high dividend.
Broadmark’s Q3 financial results will be reported in a conference call on November 7.
Franklin Street Properties Corp. (NYSEAMERICAN: FSP). Closing price per share on Nov. 15, 2022 - $2.94. Trading range for the previous 52 weeks - $2.34 to $6.58 per share.
Franklin describes itself in this way:
Franklin Street Properties, based in Wakefield, Massachusetts, is focused on infill and central business district (CBD) office properties in the U.S. Sunbelt and Mountain West, as well as select opportunistic markets. FSP seeks value-oriented investments with an eye toward long-term growth and appreciation, as well as current income.
Franklin’s current ratio is 1.35, with a book value of $7.48 per share. It has paid an annual dividend rate of $0.20 per share for a yield of 7.14%. The payout ratio is 35.90%.
George S. Carter, Chairman and CEO, commented when Franklin announced its Q3 results:
As the fourth quarter of 2022 begins, we continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets. Our primary objectives for 2022 remain twofold: We will seek to increase shareholder value (1) through the potential sale of select properties where we believe that short to intermediate-term valuation potential has been reached and (2) by striving to increase occupancy in our continuing portfolio of real estate. We intend to use proceeds from any potential future property dispositions for debt reduction, repurchases of our common stock, dividends, and other general corporate purposes.
The company reported for its 3rd quarter financial highlights:
GAAP net income was $17.2 million and $4.0 million, or $0.17 and $0.04 per basic and diluted share, for the three and nine months ended Sept. 30, 2022, respectively.
Funds from operations (FFO) was $9.0 million and $30.9 million, or $0.09 and $0.30 per basic and diluted share, for the three and nine months ended Sept. 30, 2022, respectively.
Adjusted funds from operations (AFFO) was a loss of $0.09 and $0.12 per basic and diluted share for the three and nine months ended Sept. 30, 2022, respectively.
Unfortunately, the company announced only a $0.01 dividend per common share for the 3rd quarter.
So do you want to invest in REITs under $10 per share? At least there are a couple that may be worth considering. One currently pays a high dividend, but it’s unclear how long that payout will last under current market conditions. The other has cut its dividend substantially but still appears to be a solid company. It very well may be a bargain at the current price. It will only be a matter of time to see if the dividend improves again.
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