Spirit Realty Still Spooks Me

I consider Spirit "spooky," and I am continuing to maintain a SELL. As a value investor, I am not necessarily looking for instant gratification, as that often results in underperformance.

Summary

  • I am in complete disagreement that this Net Lease REIT is "high quality."
  • I consider Spirit "spooky," and I am continuing to maintain a SELL.
  • I have no intention of jumping on the BUY-BUY-BUY train, as it could come to a screeching halt as quickly as the frothy returns that Spirit has generated.

Back in May I explained that "after the (Q1-17) earnings results, Spirit Realty (SRC) casts a dark shadow on the Net Lease REIT sector." Specifically, I cited Spirit’s "unusually high credit loss in Q1-17" as the company "opted to lower full-year AFFO guidance from the $.89-.91 per share range to $0.80-0.84 - a 9% pullback." I added:

"I have been preaching this message for quite some time, and perhaps the SRC earnings call serves as a harbinger for REIT investors that “all that glitters is not gold."

I concluded the article by downgrading shares from a HOLD to a SELL, citing the likely possibility of a dividend cut, given the increased payout ratio, or as I said, "edging closer to the proverbial 'sucker yield.'"

A few days ago, Jussi Askola decided to take a victory lap for his STRONG BUY recommendation that he referenced in his article on May 6th, days after the Q1-17 earnings hiccup. He deserves it, for shares in Spirit have climbed by around 30%. Askola explains:

"What I believe Thomas got wrong is that pricing matters just as much as quality. It was very clear already back then that Spirit was not the highest quality company out there, but its valuation was suggesting enormous and long-lasting difficulties ahead. After digging deep in the fundamentals, it was clear to me that Spirit was grossly mispriced, and now after the 30% surge in share price, I continue to believe that shareholders are set to continue outperforming."

I certainly can’t argue that Spirit’s shares are trading at a significant discount, even after the 30% "surge"; however, I am in complete disagreement that this Net Lease REIT is "high quality."

In fact, I consider Spirit "spooky," and I am continuing to maintain a SELL. As a value investor, I am not necessarily looking for instant gratification, as that often results in underperformance.

Not So Fast

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