Are you a fan of scary movies? With Halloween just around the corner, it’s the perfect time to indulge in some thrilling cinematic experiences. From classics like “The Exorcist: Believer” and “Saw X” to the comedic yet spooky appeal of “Hocus Pocus,” there’s no shortage of options to get your adrenaline pumping. If you prefer a cozy night on the couch, you can explore a plethora of horror movies on Netflix, including the terrifying Australian film “Run Rabbit Run” and the iconic “Texas Chainsaw Massacre” franchise. But let’s be honest, horror movies aren’t exactly known for their cinematic brilliance. However, some films, like “Scream,” offer deeper messaging and thought-provoking insights into the genre. While the definition of a cinematic masterpiece may be subjective, one thing is for sure: scary movie cliches are as predictable as the pitfalls of certain investment opportunities in the real estate investment trust (REIT) market.

If you’ve ever watched a horror movie, you’ve probably yelled at the characters for making ill-advised decisions. “Why would you hide in the attic when you can just leave in the running car?” It’s frustrating to see them walk straight into danger, just as it’s frustrating to see investors make avoidable mistakes in the market. Surviving a horror movie comes with its own set of rules, like never having sex, never indulging in drugs or alcohol, and never uttering the words “I’ll be right back.” But in a scary market, there are a few additional rules to stay safe:

1. Don’t skimp on research. Before investing in a stock, check the company’s numbers, management, and prospects. If the results don’t add up, it’s best to refrain from buying.

2. Don’t get dazzled by appearances. Don’t be swayed by unrealistic promises or overly optimistic projections. If an investment seems too good to be true, chances are it is. Trust your instincts and don’t fall for the allure of potential gains without evaluating the underlying fundamentals.

While these rules may seem reasonable, it’s easy to get distracted by emotions or external influences. Just like horror movie characters who think “this time is different,” investors may find themselves drawn to high dividend yields or the enthusiastic recommendations of so-called experts. However, it’s crucial to combine feelings with facts and conduct thorough research before making any investment decisions. Otherwise, you may find yourself metaphorically shouting, “Run, you fool!” as your investment takes a turn for the worse.

Now, let’s explore three spooky REITs that may incite some fright in potential investors.

If You Ever Find Yourself in a Scary Market…

First up is EPR Properties (EPR), a net-lease REIT focusing on experiential real estate. Its diverse portfolio includes movie theaters, entertainment complexes, fitness centers, amusement parks, and cultural attractions. However, EPR’s heavy reliance on movie theaters and entertainment-related properties raises concerns, especially in light of the industry’s struggles during the pandemic and the rise of streaming services. The concentration of tenants and the discretionary nature of its properties make EPR susceptible to economic downturns. Additionally, EPR’s history of dividend cuts and its high tenant concentration underscore the potential risks for investors. While the stock may seem attractive with its 7.77% dividend yield and discounted valuation, we caution against investing in EPR Properties due to the industry and tenant concentration risks it faces.

Next on the list is Global Net Lease, Inc. (GNL), the third-largest net-lease REIT with international exposure. With a diversified portfolio that spans the United States and Europe, GNL primarily focuses on retail and office properties. Despite its efforts to maintain tenant diversification, GNL’s track record under external management raises concerns. The company has consistently experienced declining earnings and dividends, suggesting poor value creation. Furthermore, GNL’s dividend payout ratios have exceeded 100% in recent years, indicating an unsustainable distribution. Although the stock may appear attractive with its discounted valuation and high dividend yield of 17.02%, we advise caution and recommend holding off on investing in Global Net Lease until they can improve their financial performance.

Last but not least is Granite Point Mortgage Trust Inc. (GPMT), a mortgage REIT specializing in floating-rate senior first mortgage loans for commercial real estate. GPMT’s portfolio consists of a variety of property types, with a focus on office and multifamily properties across the United States. Unfortunately, GPMT’s management team’s track record has been disappointing, with consistently declining earnings and dividends in recent years. The company has struggled to create value, and its dividend payout ratio has exceeded 100% in most years. While GPMT’s current discounted valuation and high dividend yield of 18.91% may seem tempting, we believe the dividend is unsustainable and anticipate further cuts in the near future. Therefore, we recommend investors steer clear of Granite Point Mortgage Trust.

Don’t Get Spooked by All REITs

While the REIT market may seem terrifying at times, it’s essential to remember that not all REITs are created equal. Despite the current market landscape and rising interest rates, REIT fundamentals remain strong, driven by same-store net operating income growth. By adopting asset-allocation strategies that align with your risk tolerance and conducting thorough research on individual REITs, you can increase your chances of success. So, don’t get tricked by sucker yields this Halloween. Instead, seek out sweet REIT treats that offer stability and growth potential.