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- 🆙 7 REIT Upgrades To Start 2024
🆙 7 REIT Upgrades To Start 2024
Plus, mortgage rates fall for 9th consecutive week. #Blessed
Ethan Roberts
January 05, 2024
👋 Happy New Year, everyone! After a tough 2022 and 2023, we’re looking forward to a much improved year for REITs in 2024. Despite the massive sell-off in tech this week, REITs fared somewhat better. With the 10-year treasury below 4%, investors see a wider disparity developing between fixed-income yields and dividend yields.
In this issue: REIT upgrades galore, mortgage rates down and a REIT that bought over 80 properties in 2023. REIT On!
Investing in real estate allows you to add alternative investments to your portfolio with one of the most reliable asset classes. Find guides, news and investment opportunities for real estate.
REIT ROUND-UP:
Prologis Inc (NYSE: PLD) December 21, announced the retirement of Vice Chairman Gene Reilly at the end of 2023, but will serve as a senior advisor through April, 2024.
Empire State Realty Trust Inc (NYSE: ESRT) December 22, announced its Board of Directors has authorized the repurchase of up to $500 million of its common stock through the two-year period between 2024-2025. This will replace the existing $500 million repurchase authorization that ran from January 1, 2022 through December 31, 2023.
Apple Hospitality REIT Inc (NYSE: APLE) December 28, announced it has acquired the SpringHill Suites by Marriott Las Vegas Convention Center for approximately $75 million.
Terreno Realty Corp (NYSE: TRNO) January 2, announced it sold a 58,000 square foot industrial property in Compton, CA on December 27, 2023 for $15.9 million. Terreno purchased the property in 2017 for $9.4 million.
DigitalBridge Group Inc (NYSE: DBRG) January 3, announced a partnership with Intel Corp (Nasdaq: INTC) to form Articul8 AI, Inc. (Articul8), an independent company to give customers a vertically optimized, full stack and secure generative artificial intelligence software platform.
Americold Realty Trust Inc (NYSE: COLD) January 4, announced that effective January 12, Marc Smernoff, CFO/Executive VP, will be leaving the company. Jay Wells, formerly the CFO of Primo Water Corp (NYSE: PRMW) has been appointed CFO/Exec VP as of January 15.
DIVIDEND NEWS:
ARMOUR Residential REIT, Inc. (NYSE: ARR) January 2, declared a $0.24 per share monthly dividend, a CUT from the previous dividend of $0.40 per share. However, the forward yield is still 15.45%.
Global Net Lease Inc (NYSE: GNL) January 2, declared an $0.354 per share quarterly dividend, in line with previous dividends, payable January 16 for shareholders of record on January 12. The ex-dividend date is January 11. The forward yields is now 14.5%.
WINNERS & LOSERS
📈 Biggest Winners This Week: Retail, Hotel and Diversified REITs
Acres Commercial Realty Corp (NYSE: ACR) Up 2.91%
Park Hotels & Resorts Inc (NYSE: PK) Up 2.55%
Creative Media & Community Trust (Nasdaq: CMCT) Up 2.44%
Medical Properties Trust Inc (NYSE: MPW) Up 2.04%
Hudson Pacific Properties (NYSE: HPP) Up 1.72%
Apple Hospitality REIT Inc (NYSE: APLE) Up 1.63%
📉 Biggest Losers This Week: Healthcare REITs
Peakstone Realty Trust (NYSE: PKST) Down 12.14%
Diversified Healthcare Trust (Nasdaq: DHC) Down 8.56%
Ashford Hospitality Trust, Inc. (NYSE: AHT) Down 7.22%
Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE: HASI) Down 6.78%
Net Lease Office Properties (NYSE: NLOP) Down 5.74%
Office Properties Income Trust (Nasdaq: OPI) Down 5.19%
Prices as of January 4, 12:00 PM
UPGRADES
Equinix Inc (Nasdaq: EQIX) January 2, Wolfe Research analyst Andrew Rosivach upgraded Equinix from Underperform to Peer Perform.
Netstreit Corp (NYSE: NTST) January 2, Wolfe Research analyst Andrew Rosivach upgraded Netstreit from Peer Perform to Outperform and announced a $22 price target.
See “One Big Thing” for more on upgrades this week.
AND DOWNGRADES
AvalonBay Communities Inc (NYSE: AVB) January 2, Wolfe Research analyst Andrew Rosivach downgraded AvalonBay Communities from Outperform to Peer Perform.
INSIDER BUYS
Whitestone REIT (NYSE: WSR) December 21, Director David F. Taylor purchased 4,824 shares of Whitestone REIT for a total of $60,010.
ONE BIG THING
WHAT: On January 2, several Jefferies analysts upgraded seven REITs and raised price targets on all of them, as well as two others whose ratings they maintained. One REIT even got a 100% price target boost!
WHO: The Jefferies analysts were David Katz, Linda Tsai, Jonathan Petersen and Peter Abramowitz.
Which: Analyst Linda Tsai upgraded three residential REITs. They were: Invitation Homes Inc (NYSE: INVH) from Hold to Buy and raised the price target 24.2% from $33 to $41. The analyst also raised American Homes 4 Rent Class A (NYSE: AMH) from Hold to Buy and lifted the price target 20.5% from $34 to $41, as well as upgrading Essex Property Trust Inc (NYSE: ESS) from Hold to Buy and raised the price target 30.69% from $215 to $281.
Analyst David Katz upgraded one hotel REIT and maintained positions on two others. He upgraded Park Hotels & Resorts Inc (NYSE: PK) from Hold to Buy and raised the price target from 50% from $14 to $21. Mr. Katz also maintained a Hold on Xenia Hotels & Resorts Inc (NYSE: XHR), but raised the price target from $13 to $14. And finally, the analyst maintained a Buy on Host Hotels & Resorts Inc (Nasdaq: HST) while raising the price target from $21 to $24.
Analyst Peter Abramowitz upgraded office REIT Boston Properties, Inc. (NYSE: BXP) from Hold to Buy and raised the price target 40.3% from $57 to $80. The analyst also upgraded Hudson Pacific Properties Inc (NYSE: HPP) from Hold to Buy and doubled the price target from $6 to $12!
Last but not least, Jefferies analyst Jonathan Petersen upgraded self-storage REIT, CubeSmart (NYSE: CUBE) from Hold to Buy and raised the price target 39.4% from $38 to $53.
There was one REIT, however, that wasn’t so highly regarded. Linda Tsai downgraded Mid-America Apartment Communities Inc (NYSE: MAA) from Buy to Hold and cut the price target from $140 to $136.
Takeaway: The upgrades send a message to investors that in 2024 REITs should bounce back strongly from the doldrums of the last two years. With the 10-year bond yield falling and the FED talking three rate cuts, interest rate sensitive stocks such as REITs appear very attractive for 2024.
The upgrades are particularly noteworthy, considering the REITs cited have surged in share price over the past two months. These are the gains made since November 1 by the REITs that were upgraded by Jefferies this week:
So thank you, Jefferies, for a Happy New Year toast to REIT investors and let’s hope these upgrades bring you lots of success in 2024!
HOUSING NEWS BRIEF
What: Mortgage rates fell for a 9th consecutive week for the week ending on December 28. As per Freddie Mac, the 30-year fixed-rate mortgage declined to 6.61% from 6.67% the previous week. The rate is still above the 6.42% rate from one year ago, but the trend is positive.
But Wait: That rate is based upon mortgage applications that Freddie Mac receives from lenders all over the U.S. But it only includes those borrowers who put down 20% and have excellent credit scores. Buyers who do not fit into those two categories will likely pay higher rates and are far less likely to be able to buy a home.
Takeaway: It wasn’t all that long ago when the 30-year interest rate hit 8%. The difference in Principal and Interest payments between 8% and 6.61% on a $400,000 house with 20% down is about $300 per month.
Even that amount will surely help some first time homebuyers who were unable to afford the higher payments that were plaguing the housing market over the spring of 2023. But there are many more, still sitting on the sidelines, expending their savings on high-priced rents that build zero equity in their future.
A Redfin Homebuyer Demand survey found that with the decline in mortgage interest rates, median home sale prices across the U.S. were up 4.5%, their biggest increase since October 2022. Simultaneously, Redfin found that U.S. pending home sales had the smallest decline since March 2022, dropping by 4% year over year in a four-week period ending on December 24. Among active listings, there are 3.6 months of supply. Four to five months is considered a balanced number, so it’s still considered a seller’s market across the U.S.
Should this trend continue, one caveat is for investors in residential REITs, such as AvalonBay Communities, Mid-America Communities Inc, American Homes 4 Rent Class A, Invitation Homes Inc and others. As mortgage rates decline further, these REITs could see reductions in occupancy as more renters become home owners.
Final Note: On January 3, the minutes of the December Federal Open Market Committee (FOMC) meeting were released. Although the FED members feel that interest rate cuts are likely in 2024, the meeting summary showed a great deal of uncertainty over when or if that will occur.
Inflationary forces in 2024, such as the rise in the minimum wage in 22 states, could hinder the FED’s attempts at reducing inflation to its preferred 2% level. Stay tuned. It could be a very bumpy road before the 30-year mortgage rate sees 5% again. But at least it’s now heading in the right direction.
ONE FOR THE ROAD
What: A spending spree during the final week of 2023 ended a year of massive acquisitions by Four Corners Property Trust Inc (NYSE: FCPT). Between December 27 and December 29, Four Corners announced it had acquired two Popeyes Restaurant properties in Arizona and Illinois for a combined $4.7 million, and two Tire Discounters properties for $1.7 million and $1.8 million each in Ohio and Kentucky.
The Popeyes restaurants were in their final stages of construction and will have triple-net leases with 20 year terms. The Tire Discounters properties were sale-leaseback contracts.
Who: Four Corners Property Trust is a Mill Valley, CA based diversified retail REIT that specializes in owning and operating restaurants, medical centers, and automotive stores. It was originally a 2015 spin-off from Darden Restaurants, Inc. (NYSE: DRI), but over the years has divested itself of about half of its original large restaurant properties in favor of fast food restaurants like Taco Bell and Popeyes, along with medical companies such as Aspen Dental and Wellnow Urgent care, and automobile services such as GoodYear Tire & Rubber Co (Nasdaq: GT), Tire Discounters and Advance Auto Parts, Inc. (NYSE: AAP).
From 2015 to the end of the third quarter 2023, Four Corners’ portfolio has grown from 418 to 1106, with 148 different brands all across the U.S. Only two states, Florida and Texas, have more than 10% of its total annualized base rent (ABR). 59% of its tenants are investment grade and it has an admirable occupancy rate of 99.8% with a weighted average lease term (WALT) of 8.0 years.
How: Four Corners has a team of nine, including President/CEO William Lenehan, that’s responsible for the speedy growth of the REIT via acquisitions. The team has specific criteria for its acquisitions, including proper location, a cap rate between 6%-7%, fungible buildings and buying leading brands in resilient industries.
In 2023 alone, Four Corners acquired over 80 properties. It seemed like almost every week there was an announcement being made of another restaurant, medical center or tire store being acquired.
Despite the aggressive acquisitions being made, Four Corners still has about $220 million available on a revolver credit line, with 90% fixed rate debt and a weighted average cash interest rate of only 3.98%. Best of all, its debt maturity schedule is fairly even over the next 10 years.
Revenues have increased in 13 consecutive quarters and Four Corners has been providing steady growth in funds from operations (FFO) as well as its dividend. Since September 2017, the quarterly dividend has grown 45.8%, from $0.24 per share to $0.35 per share. Third quarter FFO of $0.41 was 13.8% higher than Q3 in 2019. The payout ratio at 85% is a bit high, but it’s expected to come down as Four Corners continues to expand its FFO.
Takeaway: Four Corners is a fast growing hungry REIT that could reward its shareholders for a very long time. Like many REITs, it slumped for much of 2023, but since touching bottom at $20.52 on October 27, Four Corners has a total gain of 24.43%.
Investing in real estate allows you to add alternative investments to your portfolio with one of the most reliable asset classes. Find guides, news and investment opportunities for real estate.