Happy Friday! Money coming out of tech stocks and going into safer dividend stocks pushed REIT prices higher on Monday of this week but there wasn’t much follow-through. Wall Street is focused on the May personal consumption expenditures index, which is the FED’s favorite inflation measure, due out on Friday. The Vanguard Real Estate Index Fund ETF (NYSEARCA: VNQ) was up about a quarter of a percent this week.

In This Issue: The 10 REITs with the best total returns over the first half of 2024, Simon Property Group gets a boost from Netflix and Are there any realistic fixes for the housing problems?

REIT ROUNDUP:

Medalist Diversified REIT Inc (NYSE: MDRR) June 20, announced its Board approved a one-for-ten reverse stock split of shares of common stock and then an immediate five-for-one forward stock split, to take effect as of 5:00 PM EST on July 2.

Apple Hospitality REIT Inc (NYSE: APLE) June 21, announced it acquired Embassy Suites By Hilton Madison Downtown in Madison, WI for $79.5 million. Apple also announced it had recently disposed of the Springhill Suites by Marriott Greensboro, in Greensboro, N.C. for approximately $7.1 million.

Industrial Logistics Properties Trust (Nasdaq: ILPT) June 24, announced it will be joining the Russell 3000 index.

Seven Hills Realty Trust (NYSE: SEVN) June 24, announced it will also join the Russell 3000 index after the market closes on June 28.

Apartment Income REIT Corp (NYSE: AIRC) June 25, announced its shareholders have approved the all-cash sale to Blackstone Real Estate Partners X. The price paid will be $39.12 and will close on or about June 28. AIRC was at $31.50 when the deal was announced in early April.

American Strategic Investment Co (NYSE: NYC) June 26, announced it has agreed to a term sheet to sell its property at 9 Times Square in Manhattan for $63.5 million. In addition, Bellevue Capital Partners, LLC announced that it’s increased the purchase price of its previously announced tender offer for 125,000 shares of NYC from $10.25 to $11.00 per share.

Regency Centers Corp (NYSE: REG) June 26, announced a partnership with Evgo Inc (Nasdaq: EVGO) to open a new Fast Charging Station at Blakeney Town Center in Charlotte, N.C.

Global Net Lease Inc (NYSE: GNL) June 27, announced the sale of nine cold storage properties that are currently leased to subsidiaries of Americold Realty Trust Inc (NYSE: COLD) for $170 million.

Insider Transactions:

Essex Property Trust Inc (NYSE: ESS) June 25, CEO/President Angela Kleiman sold 3,780 shares of Essex Property Trust with a total transaction value of $1,051,860.

One Liberty Properties, Inc. (NYSE: OLP) June 24, Executive VP Justin Clair sold 3,800 shares of One Liberty Properties stock for a total transaction value of $92,242.

Upgrades:

Digital Realty Trust Inc (NYSE: DLR) June 26, BMO Capital analyst Ari Klein upgraded Digital Realty Trust from Market Perform to Market Outperform and raised the price target from $144 to $170.

Americold Realty Trust Inc (NYSE: COLD) June 26, JP Morgan analyst Anthony Paolone upgraded Americold Realty Trust from Neutral to Overweight and maintained the price target at $30.

Acadia Realty Trust (NYSE: AKR) June 26, JP Morgan analyst Michael Mueller upgraded Acadia Realty Trust from Underweight to Neutral and announced an $18 price target. 

WINNERS & LOSERS

📈 Biggest Winners This Week: Healthcare and Diversified REITs

• DigitalBridge Group Inc (NYSE: DBRG) Up 10.39%

• Geo Group Inc (NYSE: GEO) Up 5.05%

• Outfront Media Inc (NYSE: OUT) Up 3.64%

• Veris Residential Inc (NYSE: VRE) Up 3.43%

• NexPoint Residential Trust Inc (NYSE: NXRT) Up 3.42%

• Sabra Health Care REIT Inc (Nasdaq: SBRA) Up 3.38% 

• Sun Communities Inc (NYSE: SUI) Up 3.29%

📉 Biggest Losers This Week: Hotel and Office REITs

• Peakstone Realty Trust (NYSE: PKST) Down 7.69%

• One Liberty Properties, Inc. (NYSE: OLP) Down 4.31%

• Seritage Growth Properties Class A (NYSE: SRG) Down 4.25%

• Global Medical REIT Inc (NYSE: GMRE) Down 4.22%

• City Office REIT Inc (NYSE: CIO) Down 4.16%

• Brandywine Realty Trust (NYSE: BDN) Down 4.13%

• BRT Apartments Corp (NYSE: BRT) Down 4.04%

• Pebblebrook Hotel Trust (NYSE: PEB) Down 3.81%

• Medical Properties Trust Inc (NYSE: MPW) Down 3.74%

ONE BIG THING

The 10 Best Performing REITs In First Half 2024

What: The last two years have not held much reward for REIT investors and the first half of 2024 has been much of the same. High interest rates continued to prevent REITs from performing well and only about 30% of the 201 total universe of REITs have had positive total gains year-to-date.

Who: However, certain REIT sub-sectors have shown signs of improved performance. Most of the leaders have come from the Healthcare, Mortgage, Residential and Office groups over the year’s first half. But many REITs from those same sub-sectors have also performed dismally, leaving REIT investors frustrated.

For example, Net Lease Office Properties (NLOP), the spin-off from WP Carey Inc (NYSE: WPC) has gained over 33% in 2024 and SL Green Realty Corp (NYSE: SLG) has gained nearly 24%. But Hudson Pacific Properties Inc (NYSE: HPP), Office Properties Income Trust (Nasdaq: OPI), Peakstone Realty Trust (NYSE: PKST), Orion Office REIT Inc (NYSE: ONL) and Franklin Street Properties Corp (NYSE: FSP) have all lost between 41% to 68% of their values.

If you’re looking for REIT stalwarts such as Realty Income Corp (NYSE: O), Prologis Inc (NYSE: PLD), or Simon Property Group Inc (NYSE: SPG) on the top 10 list of 2024, you may be disappointed. Many of the REITs listed below are lesser-known names. However, for various reasons, they have outperformed their peers by a wide margin.

Here is the list of the top 10 REITs over the first half of 2024:

Why: Some REITs on the list, such as TPG RE Finance Trust Inc, reported positive first-quarter earnings that beat the analyst consensus estimates and first-quarter results from 2023.

SL Green Realty managed to overcome the current negative climate against office REITs, as well as analysts who rated the NYC REIT Sell or Underweight.

ACRES Commercial Realty Corp, a mortgage REIT for commercial real estate, missed all the analyst estimates, yet still achieved a solid performance because of declining inflation reports and the hope among investors for FED interest rate cuts soon.

Takeaway: Since institutional buying takes a long time to complete, REITs performing strongly over the first half of the year may continue to do well in the second half. Much will depend on whether or not the FED cuts interest rates and the ever-important quarterly earnings reports.

Are There Any Real Solutions to Fix the Housing Crisis?

What: Inflation, high mortgage interest rates, expensive homes and high rents have created a housing crisis for millions of young Americans. Everybody talks about the problems but are there any real fixes for them coming soon?

Who: Redfin recently surveyed the Gen Z demographic to ask about their top voting issue for the 2024 election. A surprising 91% of them said housing affordability was the number one issue. So it was no surprise when Treasury Secretary Janet Yellen promoted a $100 million affordable housing fund this week, to be rolled out over the next three years.

The specifics include a tax credit for first-time homebuyers, a plan to build more than two million homes and an expansion of the Low-income Housing Tax Credit. The Biden administration has also called on cities to convert more empty office buildings into housing units with billions of federal dollars available.

However, tax credits will not provide the down payments, closing costs and moving expenses needed by two generations of stuck renters. Zillow says that buyers today need to earn 80% more than they did in 2020 to afford a home, but salaries have only increased by 23% in that time frame.

Two million new homes over three years averages out to 40,000 per state, which probably won’t make a substantial dent in the ongoing lack of inventory. And how much will those new homes cost with labor and building materials having increased so much over the past three years? Shark Tank’s Kevin O’Leary says the Biden Administration’s $100 million to support affordable housing financing could actually turn out to be inflationary.

How: Americans are very creative and many solutions have already been proposed, including tiny homes, accessory dwelling units (ADUs) for rentals inside homes or in backyards where local zoning or HOA rules allow them and non-spouses who are pooling their resources to buy homes together.

These solutions may help but will not solve the overall problem. Converting offices into condos or homes sounds great on paper, but the reality of doing so is quite difficult and involves massive changes in plumbing, electricity, windows, flooring and the movement of massive structural components.

Why: Adding to the housing affordability crisis are high rents which deplete the ability of young workers to save for down payments and closing costs. More than half of all renters pay more than 30% of their income for rent and utilities and many of them spend upwards of 50% of income. Redfin points out in another report that the typical U.S. renter earns 17.3% less than what is needed to afford the median-priced apartment in major cities. In expensive areas such as New York City and Miami, renters earn 40% less than what they need.

Feeling frustrated, many in the Gen Z and even Millennial groups have simply given up on ever buying a home and have decided to spend rather than save any extra income. This is short-sighted because we are simply one bad recession away from home prices and interest rates declining to more affordable levels.

Takeaway: Ex post facto tax credits are nice but don’t address the monies required for closing or the inability to save when substantial portions of one’s income go toward rent. It’s also not enough to say that inflation is slowing after the price of goods and services has skyrocketed since 2021. Hawkish FED governor Michelle Bowman even said this week that she would be open to raising rates again if inflation doesn’t pull back. Inflation created most of the housing crisis and while it’s easier said than done, it will simply take the complete cessation of inflation to provide a real solution.

ONE FOR THE ROAD

Simon Property Group Gets A Boost From Netflix

Who:  Simon Property Group Inc (NYSE: SPG) is an Indianapolis-based retail REIT that owns and leases over 250 properties, consisting of shopping malls, restaurants, outlet centers and entertainment venues in the top 25 population markets across the U.S. Simon was founded in 1960 and launched its IPO in 1993.

Simon’s occupancy levels, as of March 31, 2024, were 95.5%, up from 94.4% one year ago. Base minimum rent per square foot also improved from $55.84 to $57.53 since March 31, 2023.

What: Netflix Inc (Nasdaq: NFLX) has announced the development of an “experiential entertainment venue” in two shopping malls in Texas and Pennsylvania. Simon Property Group owns the King of Prussia Mall in Pennsylvania where one of the new Netflix centers will open.

The Netflix centers will encompass 100,000 square feet and occupy spaces where department stores once existed. The experiential entertainment will allow customers to participate in activities from replicas of Netflix series, such as the romantic “Bridgerton” and the survivor show, “Squid Game”.

In addition to the experiential activities, the venues will feature restaurants and merchandise with Netflix show themes. The first two locations are expected to open sometime in 2025.

Why: Shopping mall occupancy has held up fairly well in recent years, despite headwinds from COVID-19, inflation and competition from Amazon.com Inc (Nasdaq: AMZN) and other online retailers. However, the closing of large department stores often puts a burden upon mall operators like Simon to find replacement tenants. If these initial venues succeed, Netflix and Simon have plans to develop many more locations in malls across the country.

Takeaway: Diversification and a popular name like Netflix will greatly boost traffic to Simon’s malls. If the entertainment concepts that Netflix is developing are successful, the partnership between this long-time REIT and a streaming company with almost 270 million subscribers could generate millions of dollars for both companies’ bottom lines.

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