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- đ Arbor Realty Denies Fraud Accusations, Shares Soar
đ Arbor Realty Denies Fraud Accusations, Shares Soar
Insurance Madness Threatens Homeowners and Businesses
Ethan Roberts
May 17, 2024
Happy Friday! Another month, and another doubleheader of closely watched inflation reports. On Tuesday, the April Producer Price Index (PPI) gained 0.5%, above the 0.3% Dow Jones economists expected. However, markets did not react much, as they were still awaiting Wednesdayâs Consumer Price Index (CPI). REITs were strong performers on the day.
On Wednesday, the eagerly anticipated April CPI report came in at 0.3%, below the marketâs 0.4% expectation. A 3.4% rise year-over-year was in line with estimates, and Core CPI monthly and annual numbers were also in line. This made traders happy, and the major indices gained on the news. Interest-sensitive REITs moved higher over the rest of the day and Thursday.
In This Issue: Arbor Realty Trust denies short sellerâs fraud accusations, Insurance madness threatens homeowners and businesses alike, and a Self-Storage company comes to the aid of its communities.
REIT ON!
PRESENTED BY BAM CAPITAL
BAM Capital has one of the most impressive track records of any real estate fund manager weâve seen. On 12 exited assets, investors have realized an average IRR of 35.14% with an average hold period of 3.4 years.
Its latest fund, the BAM Multifamily Growth & Income Fund IV, aims to acquire Class A & B assets located near major economic drivers with a focus on Midwest markets with strong demographics and quality school systems.
Using the BAM Companies vertically integrated platform, the fund plans to drive revenue and create operating efficiencies by seeking opportunities that can benefit from organic rent growth or select renovations to justify future rent increases.
REIT ROUNDUP:
Chimera Investment Corporation (NYSE: CIM) May 10, announced its Board of Directors has approved a reverse stock split of its common stock with a ratio of 1-for-3. The split will occur after the close of business on May 21 and begin trading on May 22. Outstanding shares will be reduced from 241.4 million to 80.5 million.
Brixmor Property Group Inc (NYSE: BRX) May 10, announced that James M. Taylor Jr. will return from a medical leave of absence to reassume his duties as President/CEO on May 20.
Franklin BSP Realty Trust Inc (NYSE: FBRT) May 13, announced it closed on a $125 million floating-rate senior loan with Quarterra Multifamily, a subsidiary of Lennar Corp (NYSE: LEN) on the refinancing of a 414-unit multifamily property in Stamford, CT. The loan has a three-year initial term and two one-year extension options.
Easterly Government Properties Inc (NYSE: DEA) May 15, announced it closed the purchase of a 49,420 square foot Orlando office building thatâs 100% leased to the U.S. Immigration and Customs Enforcement Bureau.
Four Corners Property Trust Inc (NYSE: FCPT) May 15, announced its acquisition of a Longhorn Steakhouse property in Illinois for $2.0 million. The property is net-leased.
Macerich Co (NYSE: MAC) May 16, announced the purchase of the remaining 40% share of Arrowhead Towne Center in Phoenix, AZ and the South Plains Mall in Lubbock, TX for $36.50 million plus debt. The expected cap rate is 6.5% and the closing is scheduled for this summer.
WINNERS & LOSERS
đ Biggest Winners This Week: Mortgage, Industrial and Healthcare REITs
Bridge Investment Group Holdings Inc (NYSE: BRDG) Up 10.95%
Orion Office REIT Inc (NYSE: ONL) Up 9.12%
Innovative Industrial Properties Inc (NYSE: IIPR) Up 7.64%
Americold Realty Trust Inc (NYSE: COLD) Up 7.41%
Arbor Realty Trust Inc (NYSE: ABR) Up 7.17% (See story below)
Medical Properties Trust Inc (NYSE: MPW) Up 6.82%
Healthcare Realty Trust Inc (NYSE: HR) Up 5.80%
đ Biggest Losers This Week: Retail REITs showed some weakness
Seritage Growth Properties Class A (NYSE: SRG) Down 33.12%
Alexanderâs, Inc. (NYSE: ALX) Down 9.21%
Clipper Realty Inc (NYSE: CLPR) Down 5.48%
DigitalBridge Group Inc (NYSE: DBRG) Down 3.23%
Global Self Storage Inc (NYSE: SELF) Down 2.87%
BRT Apartments Corp (NYSE: BRT) Down 2.52%
Global Medical REIT Inc (NYSE: GMRE) Down 2.44%
Hannon Armstrong Sustnbl Infrstr (NYSE: HASI) Down 2.33%
Prices as of May 16 at noon
Upgrades:
Park Hotels & Resorts Inc (NYSE: PK) May 15, Evercore ISI Group analyst Richard Hightower upgraded Park Hotels from In-Line to Outperform and raised the price target from $19 to $20.
and Downgrades:
Safehold Inc (NYSE: SAFE) May 10, Mizuho analyst Haendel St. Juste downgraded Safehold from Buy to Neutral and lowered the price target from $22 to $20.
AvalonBay Communities Inc (NYSE: AVB) May 13, Evercore ISI Group analyst Steve Sakwa downgraded AvalonBay Communities from Outperform to In-Line and announced a $202 price target.
Equity Residential (NYSE: EQR) May 13, Evercore ISI Group analyst Steve Sakwa downgraded Equity Residential from Outperform to In-Line and announced a $70 price target.
Medical Properties Trust Inc (NYSE: MPW) May 14, RBC Capital analyst Michael Carroll downgraded Medical Property Trust from Outperform to Sector Perform and announced a $5 price target.
Insider Transactions:
Universal Health Realty Income Trust (NYSE: UHT) May 9, Director Robert F. McCadden purchased 2000 shares of UHT stock at a weighted average price of $37.38 for a total value of $74,760.
Macerich Co: May 6 through May 9, President/CEO Hsieh Jackson, and two other company insiders bought numerous shares of MAC common stock. Jackson bought 140,000 shares of Macerich stock at $14.263 per share. Another 13,500 shares were purchased between the other two insiders.
ONE BIG THING
Arbor Realty Denies Fraud Accusation, Shares Soar
What: On Tuesday, shares of Arbor Realty Trust soared 13% off the opening bell, days after denying accusations of fraud by Short Seller Viceroy Research.
Who: Arbor Realty Trust Inc (NYSE: ABR) is a Long Island based mortgage REIT (mREIT) that initiates bridge and mezzanine loans for commercial and residential properties. Many of its loans originate through Fannie Mae and Freddie Mac programs. Arbor Realty Trust generates profits by the spread between the loan financing cost and the interest earned from that loan. Many of its commercial loans are short-term first mortgage liens with higher interest rates.
Recent Events: On May 3, Arbor Realty Trust released its Q1 2024 operating results. Adjusted EPS of $0.47 beat the consensus estimate of $0.41. Revenue of $103.61 million beat the projection of $89.949 million. But revenue was 4.57% below Q1 2023 revenue of $108.574 million.
On May 6, Wedbush analyst Jay McCanless reiterated Arbor Realty Trust at Neutral and maintained a $13 price target. In April, analyst McCanless downgraded Arbor Realty Trust from Outperform to Neutral and lowered the price target by 23.5% from $17 to $13. The analystâs concern was about interest rates remaining higher for longer and the risk that Arbor Realty will incur more delinquencies and non-performing loans. In addition, he sees the potential for lower loan volume.
Short Seller, Viceroy Research, had been critical of Arbor Realty Trust for some time. In February, after Q4 earnings were released, Viceroy called it âBaloney with a side of Flimflam.â In late March, Viceroy wrote âArbor-The Cream of the Flopâ.
On May 8, Arbor released a statement that despite accusations by short sellers, it encourages investors to review Arborâs public disclosures and statements and announced that it stands by its detailed filings.
On May 9, Viceroy Research released a report accusing Arbor Realty Trust of fraud. Viceroy alleged that Arbor hides losses by financing asset purchases from its own foreclosures in off-balance-sheet transactions. It termed this âan elaborate and intentional con.â Viceroy flagged a recent ABR multifamily portfolio purchase and alleged that Arbor used a separate entity it owns to buy the assets. Viceroy also stated that Arbor âhas fraudulently overstated the value of its loan book through undisclosed, off-balance sheet, related party transactionsâ
Viceroyâs report shook the market and Arbor Realty shares declined by 4.9% following the reportâs release. Put volume was heavy and bearish.
However, as is often the case, Arbor Realty Trust has stormed back this week. After a strong 4.5% gain on Monday, short sellers may have panicked. With no further news, call volume escalated and shares blasted higher Tuesday morning. By the end of the day, Arbor Realty Trust had gained 10.54%.
It remains to be seen if anything more will come of the accusations, but for now, Arbor Realty investors are breathing a sigh of relief.
Insurance Madness Threatens Homeowners and Businesses
What: As if things werenât bad enough with office vacancies and the present lack of affordability of home ownership, escalating insurance costs threaten the budgets of everyone who owns a commercial or residential property in the U.S.
Moodyâs Analytics reports that commercial real estate insurance has risen an average of 7.6% annually since 2017. Insurance on rental apartment buildings is up 14.4% annually. Landlords can only bear so much increase and remain profitable. After that, expenses must be passed on to tenants through higher rents. But tenants cannot continue to afford ever-increasing rents, especially if they are trying to save to buy a home.
Why: People ask, why are insurance premiums rising so fast? There are several reasons, such as inflationary replacement costs, a shrinking reinsurance market and higher costs incurred from natural disasters.
According to the real estate data analytics firm, CoStar Group Inc (Nasdaq: CSGP), since 2021, rising insurance costs have contributed to a 79% drop in the number of property sales of $25 million and up.
Total losses in North America from natural disasters in 2023 were approximately $66 billion, of which $50 billion were insured. Reinsurers only cover about 60% of all damage that insurance companies pay. So, insurance rises when natural disasters occur more frequently.
Who: Homeowners are not immune to rising insurance costs either. Over the past five years, homeownerâs insurance has increased an average of 18%, with some states having endured hikes as much as 23%. In areas where home prices continue to rise, replacement costs have also increased to keep up with increasing values. However, rising home values donât put extra money into a homeownerâs pocket unless they sell their home. So when insurance costs rise, itâs just more expense for the homeowner.
Takeaway: Unless the United States gets a handle on inflation, insurance and other costs threaten the viability of commercial property owners, as well as the residential real estate market.
ONE FOR THE ROAD
U-Haul: Shows Compassion In Times of Need
What: Talk about giving back to the community- in the past several years, whenever thereâs been a hurricane, tornado, flood, or other type of natural disaster, U-Haul Holding Co (NYSE: UHAL) has made storage space and packing materials available for free for 30 days to local victims whose homes or businesses have been lost or suffered damage.
Who: U-Haul is a well-known self-storage and moving company, founded in 1945 as, âU-Haul Trailer Rental Companyâ. Self-storage units and portable moving and storage units were introduced in 1973. U-Haul has over 2200 company-operated retail moving stores and nearly 21,300 independent U-Haul dealers. It has well over 1900 self-storage locations in the U.S. and Canada.
Although U-Haul owns and operates storage facilities like REITs such as CubeSmart (NYSE: CUBE) and Extra Space Storage Inc (NYSE: EXR), itâs not structured as a REIT per se and ceased paying dividends after September 2022.
Where: On May 10, U-Haul announced it was offering 30 days of free storage and U-Box rentals in Tallahassee, FL after powerful thunderstorms and a tornado struck that city the previous evening, leaving hundreds of homes and businesses damaged and 66,000 residents without electrical power.
But thatâs not an isolated instance. Here are several other dates and locations, all within the past ten weeks that U-Haul has lent a helping hand to storm victims:
May 9, Kalamazoo, St. Joseph, Branch, and Cass counties in southern Michigan.
May 7, Barnsdall, Bartlesville and other areas of northeast Oklahoma.
May 3, Livingston, Texas (near Houston)
April 26, Elkhorn, Bennington and Blair Nebraska (near Omaha)
April 11, Slidell and eastern St. Tammany Parish, Louisiana.
April 3, Conyers, Georgia
On May 15, U-Haul went above and beyond providing relief for victims of natural disasters, when it announced it would also offer free 30-day storage and U-Box container usage for tenants being forced out of three apartment complexes in Shreveport, LA, due to unsafe living conditions and the possibility of all utilities being shut off.
Takeaway: Natural disasters will continue to strike cities across the U.S. While corporations are often regarded as cold and impersonal, or solely concerned with making profits at the little guyâs expense, U-Haul is proof that some corporations can be quite compassionate in times of great need or crisis in the communities they serve.
Kudos to you, U-Haul!
PRESENTED BY BAM CAPITAL
BAM Capital has one of the most impressive track records of any real estate fund manager weâve seen. On 12 exited assets, investors have realized an average IRR of 35.14% with an average hold period of 3.4 years.
Its latest fund, the BAM Multifamily Growth & Income Fund IV, aims to acquire Class A & B assets located near major economic drivers with a focus on Midwest markets with strong demographics and quality school systems.
Using the BAM Companies vertically integrated platform, the fund plans to drive revenue and create operating efficiencies by seeking opportunities that can benefit from organic rent growth or select renovations to justify future rent increases.