Happy Friday! Although the jobs report last Friday saw more jobs added than the street was expecting, the unemployment rate also rose to 4.1%, the highest mark since November 2021. Markets are anticipating a Fed interest rate cut in September, and the major indices continued to rise this week, especially after Fed chairman Jerome Powell said there’s a risk in holding rates high for too long.

On Thursday, the June Consumer Price Index (CPI) fell 0.1%, making the year-over-year 3.0%, whereas the Street was looking for a gain of 0.1% and 3.1% y-o-y. Core CPI, excluding food and energy was 3.3%, also below street expectations. REITs rallied strongly on the news. The Vanguard Real Estate Index Fund ETF (NYSEARCA: VNQ) was up 3.95% for the week.

In This Issue: See which 12 REITs have just received target price increases, 5 low priced REITs could be making a comeback and moving companies come under increased government scrutiny.

REIT ROUNDUP:

WP Carey Inc (NYSE: WPC) July 10, announced that John Park will step down as President, as of September 30, 2024. Company CEO, Jason Fox will assume the President role at that time.

Digital Realty Trust Inc (NYSE: DLR) July 10, announced it has acquired the Slough Data Center Campus in West London for $200 million.

Simon Property Group Inc (NYSE: SPG) announced it has partnered with BP Plc (NYSE: BP) to expand BP’s global EV charging business at 75 of Simon-owned properties, providing more than 900 fast-charging bays by early 2026.

Upgrades:

SL Green Realty Corp (NYSE: SLG) July 9, Scotiabank analyst Nicholas Yulico upgraded SL Green Realty from Sector Underperform to Sector Perform and raised the price target from $43 to $53.

Regency Centers Corp (Nasdaq: REG) July 9, Mizuho analyst Haendel St. Juste upgraded Regency Centers from Neutral to Outperform and raised the price target from $61 to $67.

Sunstone Hotel Investors Inc (NYSE: SHO) July 10, Wolfe research analyst Keegan Carl upgraded Sunstone Hotel Investors from Peer Perform to Outperform and announced a $12 price target.

and Downgrades:

Hudson Pacific Properties Inc (NYSE: HPP) July 10, Morgan Stanley analyst Ronald Kamdem downgraded Hudson Pacific Properties from Equal-Weight to Underweight and lowered the price target from $6 to $4.25.

WINNERS & LOSERS

📈 Biggest Winners This Week: Office and Mortgage REITs

• Industrial Logistics Property Trust (Nasdaq: ILPT) Up 20.29%

• Uniti Group (Nasdaq: UNIT) Up 16.97%

• Peakstone Realty Trust (NYSE: PKST) Up 13.61%

• Orion Office REIT Inc (NYSE: ONL) Up 11.01%

• Vornado Realty Trust (NYSE: VNO) Up 10.10%

• Claros Mortgage Trust (NYSE: CMTG) Up 10.09%

• SL Green Realty Corp (NYSE: SLG) Up 10.09%

• Office Properties Income Trust (Nasdaq: OPI) Up 10.05%

• Piedmont Office Realty Trust, Inc. (NYSE: PDM) Up 9.52%

• Community Healthcare Trust Inc (NYSE: CHCT) Up 9.19%

📉 Biggest Losers This Week: Very few losers this week

• Global Self Storage Inc (NYSE: SELF) Down 2.40%

• Welltower Inc (NYSE: WELL) Down 1.91%

• Global Net Lease Inc (NYSE: GNL) Down 1.06%

• NewLake Capital Partners Inc (OTCMKTS: NLCP) Down 1.04%

• American Homes 4 Rent Class A (NYSE: AMH) Down 0.83%

ONE BIG THING

Analysts Raise Price Targets On A Dozen REITs

What: A dozen REITs have received price target increases from analysts at several large Brokerage firms over the past 9 days. And one of the 12 REITs received price target hikes from two analysts.

Why: The markets expect the Fed to begin lowering interest rates, perhaps as early as at its September meeting. Lower interest rates are especially beneficial to REITs because it makes loans for acquisitions or refinances more affordable. Lower debt ratios can ultimately lead to higher dividend payouts.

WHO: Eight analysts from a half dozen brokerages increased REIT target prices. Three of the REITs, Iron Mountain Inc (NYSE: IRM), Essex Property Trust Inc (NYSE: ESS) and Welltower Inc (NYSE: WELL) received large target price increases. Analysts gave a few lower-priced REITs, such as SL Green Realty Corp (NYSE: SLG) and Regency Centers Corp (Nasdaq: REG) large percentage increases.

Which: Several sub-sectors, such as mortgage (mREITS), industrial, specialized, healthcare, residential and retail REITs were included in the target price hikes. This broad-based positive action bodes very well for REITs in total.

The table below summarizes the 12 REITs, brokerages, analysts, and the recent price target increases:

States Cracking Down On Moving Scams

What: Last week, we told you about states getting tougher on squatters who take over private residences. This week’s focus is on moving companies that scam consumers in different ways and a new effort in the state of Florida and elsewhere by state and Federal officials to make it more difficult for that to happen:

In February 2024, the Florida state legislature passed a new law, SB 304, to crack down on moving companies that try to scam customers out of money. The law was enacted to protect consumers from the most common scams, such as price gouging, bait-and-switch tactics and refusing to release household items until additional monies are paid. The new law took effect on July 1.

Why: North American Van Lines estimated that 25.6 million Americans moved in 2023. The number of complaints made to the Federal Motor Carrier Safety Administration (FMCSA) against moving companies more than doubled between 2015-2022, from 3,030 to 7,647. Overcharging accounted for 40% of the complaints. Other complaints included delayed deliveries, damaged goods and goods being held hostage. Consumers are sometimes quoted one price in advance, only to be told that more money is due upon the truck’s arrival at the new property. If the consumer refuses to pay, the shipped items may be held hostage until the additional payment is made.

How: The new Florida law requires:

• All moving companies must register with the Florida Department of Agriculture and Consumer Services

• Movers must now provide detailed and clear estimates and contracts, with all potential costs, dates and terms outlined in advance.

• New requirements when advertising moving services to prevent companies from making false claims and to disclose company registration status.

• A moving company or mover’s employee can now be subject to a third-degree felony and fined up to $50,000 for refusing to comply with an order from law enforcement to return a customer’s household goods.

Where: Unfortunately, laws like SB 304 are not yet nationwide. New York has released educational materials and guidelines for consumers through its Department of State’s Division of Consumer Protection but has yet to pass any significant laws against moving company fraud other than to require licensure for all moving companies.

The FMCSA addresses consumer complaints against moving companies and in 2023 conducted an operation in four states that determined there were over 1,000 violations of FMCSA regulations. Enforcement against some companies included issuing letters of Probable Violation or revoking their FMCSA operating authority. The U.S. Department of Justice (DOJ) filed a civil penalty enforcement against some of these violators, but that case is still pending in a California federal court. The companies with the most complaints could also be subject to criminal charges in the future.

Takeaway: Florida’s new law is a good start and the state has already taken action against 18 moving companies alleged to have scammed consumers. However, more states must enact similar laws because the FMCSA cannot handle the thousands of moving company violations nationwide. It must be noted that not all moving companies are guilty of scamming customers and there are many moving companies with excellent records. But the bad apples in the bunch are now under increased scrutiny and that’s a positive for the industry as a whole.

ONE FOR THE ROAD

5 Under $5: The best REITs Below $5 over the Past Month

What: The best-performing REITS under $5 a share over the past month.

Who: Diversified Healthcare Trust (Nasdaq: DHC) up 16.67%, Great Ajax Corp (NYSE: AJX) Up 8.54%, Innsuites Hospitality Trust (NYSE: IHT) up 8.52%, Paramount Group Inc (NYSE: PGRE) up 4.26% and Braemar Hotels & Resorts (NYSE: BHR) up 2.75%. Paramount paid a $0.04 per share dividend and Braemar Hotels paid a $0.05 dividend as part of its total return. None of the others paid a dividend.

Why: There’s no doubt that these five REITs have performed badly over the past few years. High debt ratios, interest rate hikes, poor earnings and other factors have brought share prices down considerably. But it’s not always what you buy but when you buy it that matters most.

When institutions buy, it frequently takes a long time for them to accumulate shares. Uncovering REITs with the highest relative strength over a short but meaningful time frame such as a month, can help investors spot possible undervalued bargains that are turning around.

How: The recent news on these REITs is quite mixed and in some cases, it would even lead one to think the stock would decline further. After the bell on June 20, Diversified Healthcare Trust filed for a mixed shelf offering of up to $1.5 billion. Great Ajax received a downgrade from Raymond James analyst Stephen Laws on July 6. There was no news on InnSuites but as of mid-June, it was very overbought on RSI. IHT has since declined from $1.98 to $1.68.

Paramount Group had an excellent first-quarter earnings report and raised its FFO projection in May, but has had no news since then. On July 2, Braemar Hotels signed a cooperation deal with Blackwells Capital LLC, a large shareholder, in which Braemar agreed to add an independent director to its board with input from Blackwells and Blackwells agreed to withdraw its proxy solicitation and vote in favor of all company nominees and proposals. In additon, the week before the deal was announced, Braemar had some very interesting option contracts being opened.

None of the five REITs listed above have received analyst upgrades or price target hikes that might account for large gains. None of the five had earnings reports in June or July. There have been no dividend increases among the five either. Two of the five are Hotel REITs, but the other three are Office REITs, Healthcare REITs and mortgage REITs (mREIT).

Takeaway: While some of the reasons for the performances of these REITs remain a mystery, all five nonetheless bear watching for future announcements that could be positive. A rising tide lifts all boats and with REITs advancing as a group, perhaps these low-priced stocks are being carried along for the ride. But since lower-priced stocks tend to be volatile, it’s always safest to wait for a pullback to find a better entry point.

(One-month performances as of close on 7/8/24)

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