👋 Happy Friday, Everyone. Here are the results from our poll last week. As a quick refresher, we asked which section is your favorite. You said:

• 🟩🟩🟩🟩🟩🟩 REIT Round-Up

• 🟨🟨🟨🟨⬜️⬜️ Biggest Winners / Losers

• 🟨⬜️⬜️⬜️⬜️⬜️ Upgrades / Downgrades

• ⬜️⬜️⬜️⬜️⬜️⬜️ One Big Thing

• ⬜️⬜️⬜️⬜️⬜️⬜️ Housing Brief

• ⬜️⬜️⬜️⬜️⬜️⬜️ One for The Road

As such, we’ve rearranged the sections according to your preference! Let us know what else you’d like to see in this newsletter.

Editor’s Note: This week was the kickoff of third-quarter earnings season and a few REITs reported decent operating results. But new highs near 5% in the 10-year treasury bill put a damper on the sector as a whole. Meanwhile, the 30-year mortgage hit 8%, the highest it has been since 2000. On Thursday, Jerome Powell said the Fed is proceeding carefully and inflation is on a downward trend since last month, but further strong reports like the ones in September could warrant additional interest rate hikes. After an initial hit, REITs bounced back and were mostly unchanged after the speech.

PRESENTED BY BAM CAPITAL

Finding Opportunity In Any Environment

BAM Capital has one of the most impressive track records of any real estate fund manager we’ve 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.

Visit BAM Capital’s website for more details or to view the fund’s offering memorandum.

REIT ROUND-UP

Agree Realty Corporation (NYSE: ADC) October 12, increased its monthly dividend from $0.243 to $0.247, payable November 14 to stockholders of record as of the close on October 31. The raise on an annual basis is 2.9%.

Four Corners Property Trust Inc (NYSE: FCPT) October 12, announced the acquisition of a corporate owned, net leased Oak Street Health property in Arkansas for $2.4 million.

Tanger Factory Outlet Centers Inc (NYSE: SKT) October 13, announced an increase in its quarterly dividend from $0.245 to $0.26 per share, payable November 15 to stockholders of record on October 31. This represents a 6.1% increase in its annualized dividend from $0.98 to $1.04 per share.

Gladstone Commercial Corporation (Nasdaq: GOOD) October 13, announced it has acquired a 70,000 square foot industrial manufacturing facility in Allentown, PA for $7.8 million, with a weighted GAAP cap rate of 9.2%. The property has a long-term sale-leaseback transaction with a 20-year absolute triple net lease with Alleguard, a manufacturer of foam products.

Crown Castle Inc (NYSE: CCI) October 18, announced it plans to relocate 1000 employees from several nationwide locations to one centralized location by the end of Q3 2024. Also announced that CFO Daniel K. Schlanger will be leaving the company effective March 31, 2024.

Third Quarter Earnings

A handful of REITs reported third quarter earnings this week. Over the next two weeks, the majority of REITs will be reporting:

📈 Biggest Winners This Week:  

• Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE: HASI) Up 12.13%

• NewLake Capital Partners Inc (NYSEAMERICAN: NLCP) Up 6.56%

• Strawberry Fields REIT Inc (NYSE: STRW) Up 6.37%

• Paramount Group Inc (NYSE: PGRE) Up 6.03%

• Office Properties Income Trust (Nasdaq: OPI) Up 5.61%

• Outfront Media Inc (NYSE: OUT) Up 5.54%

• Apartment Investment and Management Co (NYSE: AIV) up 5.05%

• City Office REIT Inc (NYSE: CIO) Up 4.45%

📉 Biggest Losers This Week:  

• ARMOUR Residential REIT, Inc. (NYSE: ARR) Down 16.47%

• Invesco Mortgage Capital Inc (NYSE: IVR) Down 10.89%

• Medical Properties Trust Inc (NYSE: MPW) Down 10.04%

• Uniti Group Inc (Nasdaq: UNIT) Down 9.98%

• Hudson Pacific Properties Inc (NYSE: HPP) Down 9.11%

• Acres Commercial Realty Corp (NYSE: ACR) Down 8.61%

Prices as of October 19, 1:00 PM

UPGRADES AND DOWNGRADES:

Kilroy Realty Corp (NYSE: KRC) October 13, Jefferies analyst Peter Abramowitz upgraded Kilroy Realty from Hold to Buy and raised the price target from $34 to $35.

Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE: HASI) October 17, Morgan Stanley analyst upgraded Hannon Armstrong Sustainable Infrastructure from Equal-Weight to Overweight, and announced a price target of $23.

Sabra Health Care REIT Inc (Nasdaq: SBRA) October 16, Wells Fargo analyst Connor Siversky upgraded Sabra Health Care REIT from Underweight to Equal-Weight and announced a $15 price target. October 17, BMO Capital analyst John Kim downgraded Sabra Health Care REIT from Outperform to Market Perform and announced a $16 price target. 

Broadstone Net Lease Inc (NYSE: BNL) October 18, Wolfe Research analyst Andrew Rosivach upgraded Broadstone Net Lease from Peer Perform to Outperform and announced a $17 price target.

Hudson Pacific Properties Inc (NYSE: HPP) October 18, Mizuho analyst Vikram Malhotra upgraded Hudson Pacific Properties from Underperform to Neutral and announced a $7 price target.

Crown Castle Inc (NYSE: CCI) October 16, RBC Capital analyst Jonathan Atkin downgraded Crown Castle from Outperform to Sector Perform and lowered the price target from $125 to $100.

Medical Properties Trust Inc (NYSE: MPW) October 16, Wells Fargo analyst Connor Siversky downgraded Medical Properties Trust from Equal-Weight to Underweight and announced a $4 price target.

ONE BIG THING

Prologis: When Your Best Just ‘Aint Good Enough

Briefly: On October 17, stalwart Industrial REIT Prologis Inc (NYSE: PLD) announced Q3 earnings and beat the analyst estimates on funds from operations (FFO) and revenue, had solid occupancy numbers, raised its 2023 guidance, but still got taken down by Wall Street.

What Happened: Core FFO per share of $1.30 beat the analyst estimates of $1.25, but was well below FFO of $1.83 in Q3 2022. Revenue of $1.78 1.92 billion beat the estimate of $1.73 billion and was above revenue of $1.16 billion year-over-year. Average occupancy of 97.5% was slightly above the previous quarter.

Prologis also raised the lower end of its previous 2023 full year FFO guidance from $5.56-$5.60 to $5.58-$5.60. Consensus estimates are for $5.59. Occupancy guidance was also lifted to 97.25%-97.50%.

Fall Out: Considering all of the economic difficulties of 2023, Prologis’ Q3 had some pretty good numbers. But Wall Street wasn’t happy. At the earnings conference call, analysts questioned the softer demand for new build-to-suit space in 2024 and wondered aloud if Prologis would be able to maintain or grow its rents. Management was forced to admit that its customers were slow to pull the trigger on expanding and leasing new space until they see improvements in the present economic climate.

Following the pre-market earnings announcement, Prologis traded higher throughout the morning. After closing the previous day at $110.88, Prologis touched $113.16 just as the conference call began. But after the call, share prices collapsed and finished the day at $108.13, down 2.52%. More pain followed on Wednesday and Thursday, as the stock touched a low of $102.07. Prologis has now dropped over 38% since hitting its all time high of of $167.42 in April 2022.

It’s not enough for the top Industrial REIT in America to have a decent quarter and beat the expectations. Wall Street really wants to know what you’re going to do for them over the next four quarters. And on earnings day, Prologis failed to tell them what they wanted to hear.

HOUSING NEWS BRIEF

What: An important class action lawsuit opened with jury selection on October 16, in the case of Burnett et al. vs National Association of Realtors (NAR) in Kansas City, Mo. Plaintiffs in this case are questioning the business competition rules that Real Estate Brokers routinely use when homes are listed for sale.

Plaintiffs: Allege that commission rates are too high, buyer brokers are being paid too much, and that the industry requires home sellers to pay commissions to the broker or agent representing the buyer which are anticompetitive and therefore unlawful practices. Plaintiffs’ claims involve Count one of the Sherman Antitrust Act, which prohibits contracts in restraint of trade.

NAR’s Take: Broker compensation is always negotiable and never set by NAR. Commissions are market-driven and fluctuate over time. NAR encourages a free market and competition and has specific rules to prohibit antitrust behavior among its members.

Who May Benefit: Anyone who sold a home between April 29, 2015 and June 30, 2022 would be part of the class action lawsuit if they used a real estate broker or agent in NAR and paid a commission for doing so.

Takeaway: Should the plaintiffs prevail, it could mean important changes in the way Multiple Listing Services (MLS) are set up in the U.S. The present system of a total commission being split between listing and selling broker could end.

The MLS system alerts thousands of Realtors to the opportunity to show and possibly sell the listed home. Homes are sold faster and often at higher prices, benefitting the seller. Without an MLS, only one Realtor would be involved and it would take much longer to find a buyer for the home. This could give larger brokerages an unfair advantage over smaller brokerages.

If the plaintiffs win, monetary damages may be awarded, even if the structure or practices of NAR and the MLS remains the same. A verdict is expected by November 10, but whichever side loses can appeal, and the ultimate verdict could take years to be decided.

ONE FOR THE ROAD

Tanger Factory Outlets: Strong Consumer Spending A Q3 Plus

Who? Tanger Factory Outlet Centers Inc (NYSE: SKT), a retail REIT with 36 open-air outlet centers across 20 states and Canada, with leases to over 2700 stores and more than 600 different companies.

What? On October 13, Tanger Factory Outlet Centers announced an increase in its quarterly dividend from $0.245 to $0.26 per share, payable November 15 to stockholders of record on October 31. This represents a 6.1% increase in its annualized dividend from $0.98 to $1.04 per share. The annualized dividend of $1.04 per share now yields 4.3%.

Why? September retail sales were stronger than expected this week, rising 0.7%, well above the 0.3% increase expected. Consumers continue to spend like crazy, despite the inflation that Wall Street still sees as a headwind. Gen Z and Millennials are the largest spenders and a recent Bankrate survey found that 53% of Gen Z and 50% of millennials have some kind of side gig or freelancing work generating extra income.

About 50% of Gen Z (ages 18-24) and about 20% of millennials (age 25-34) sill live with their parents. Many are disillusioned and have no intention of saving up for a home. Living at home and having side gigs create a lot of disposable cash to spend. And it shows- according to the U.S. Bureau of Economic Analysis, U.S. consumer spending increased from $15.312 billion to $15.343 billion between Q1 and Q2 2023.

The Takeaway: That brings us back to Tanger Factory Outlets and their announcement of a 6% dividend increase three weeks before Q3 earnings. Companies don’t usually raise dividends that much unless they’re expecting a positive earnings report. Another recent positive was the JP Morgan upgrade on October 12, from Underweight to Neutral, while raising the price target from $24 to $25. While many REITs have badly underperformed this year, Tanger can boast a total year-to-date return of 38.68%.

Tanger Factory Outlets will announce its third quarter earnings on November 6. Keep in mind, its Q2 earnings report beat the FFO estimates by $0.07 per share.

Shopping anyone?

PRESENTED BY BAM CAPITAL

Finding Opportunity In Any Environment

BAM Capital has one of the most impressive track records of any real estate fund manager we’ve 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.

Visit BAM Capital’s website for more details or to view the fund’s offering memorandum.