Where The Shorts Are. Are These REITs An Opportunity Or A Danger For Investors?

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High short interest in a stock can be interpreted in various ways, and whether it is a bad sign depends on the context and the investor’s perspective. High short interest typically indicates that a significant number of investors believe the stock’s price will decline. This bearish sentiment can be a warning sign of potential underlying issues with the company or just a gloomy view of the sector it operates in. A look at the short interest in real estate investment trusts (REITs) can often yield clues about what the market is thinking about these companies.

Overall, according to S&P Global Market Intelligence, short interest in REITs was up to 3.6% of shares outstanding. Office and hotel REITs were the most highly-shorted categories, but short interest in hotels declined during the month. Short interest in industrial properties rose.

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The Most Heavily Shorted Stocks

Medical Properties Trust (NYSE:MPW) saw its short interest decline in June, but it is still the most heavily shorted REIT, with a short interest of 32.6% at the end of June. It has a high forward dividend yield of 12.3% and a small annual payout of $0.60. Last year, it cut its dividend from $0.29 to $0.15.

Medical Properties Trust’s largest tenant, Steward Health Care, filed for bankruptcy earlier this year, and concerns over the fate of that company may be driving much of that short interest. Steward Health Care is currently in the midst of restructuring and attempting to sell off some of its hospital properties. It recently canceled an auction for a first round of hospital sales. Discussing the situation on the first quarter earnings call, Medical Properties Trust CEO Edward Aldag said, "We firmly believe that an orderly transition of Steward Hospitals to new operators is in the best interest of everyone, and we’re committed to providing $75 million in debt financing to help achieve that."

Earlier this year, Medical Properties Trust sold off interest in five Utah hospitals to pay off some of its debt. In May, it closed an $800 million loan with a 10-year term secured by its U.K. portfolio. The company aims to generate $2 billion in liquidity by selling off assets. Those shorting the stock may not be sure the company will hit its goals.



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In June 2024, the second most heavily shorted REIT was SL Green (NYSE:SLG). SL Green focuses on Class A buildings in Manhattan and is the city's biggest office landlord. The stock has been shorted heavily in recent months because of its exposure to the office category and its geographic emphasis are two reasons. At the end of June, its short interest stood at 19.7%. However, a solid second quarter that included increased revenue from its Summit observation deck at the One Vanderbilt Tower and the signing of 38 leases may give some investors hope that this company is rebounding along with New York City.

Net Lease Office Properties (NYSE:NLOP) is not as heavily shorted as Medical Properties Trust or SL Green, but it saw the biggest increase in short interest in June, up to 9.7% of shares outstanding. In November 2023, the company was spun off from diversified REIT W.P. Carey (NYSE:WPC) and is managed and advised by affiliates of W.P. Carey. At the time of the spin-off, its portfolio had 59 office properties.

The company’s strategy is to manage the assets and dispose of them over time. So far, it has been doing just that. Year to date, it has sold nine properties for a total of $236 million. Because Net Lease Office Properties is acting as a liquidation vehicle, it doesn't have a strong pathway for growth. It does have a forward dividend yield of 5.36% with an annual payout of $1.36. Those shorting the stock believe that the price will continue to drop even as it sells more properties and throws off more cash.

Some investors view high short interest as a contrarian indicator. If they believe the market is overly pessimistic, they might see it as a buying opportunity, expecting the stock to rebound. However, high short interest should prompt investors to conduct thorough research to understand the reasons behind it before investing.

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