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🧓 Boomers Take a Stand

🧓 Boomers Take a Stand

Plus, the Fed dumped cold water on REIT investors this week.

Ethan Roberts
February 02, 2024

Happy Friday! Once again, markets were on Fed Watch this week, hoping to gain a ray of sunshine on interest rates from the two-day FOMC meeting on Tuesday and Wednesday.

Instead, they got a cold water shower from Fed Chairman Powell, who said it was unlikely there would be an interest cut in March and while the economy is showing strength, the FED is still more concerned with inflation than how the economy is performing.

REITs continued their sell-off after the announcement, a trend that began in early January but bounced back appreciably on Thursday morning. REIT On!

In Today’s Edition: BXP gets whacked on forward guidance, Baby Boomers take a stand, plus a REIT issues its brand new IPO.

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REIT ROUNDUP:

Weyerhaeuser Co (NYSE: WY) January 25, announced a supplemental dividend of $0.14 per share, payable February 27 for shareholders at the close of business on February 16. The ex-dividend date is February 15.

Empire State Realty Trust Inc (NYSE: ESRT) January 25, announced it has signed a new full-floor lease of 52,116 square feet with Greater New York Mutual Insurance Co in the Empire State building.

Office Properties Income Trust (Nasdaq: OPI) January 30, announced it has amended and restated its secured credit agreement that governs its new $325 million secured revolving credit facility and $100 million secured term loan with a maturity date of January 29, 2027.

Notable Earnings:

Equity Residential (NYSE: EQR) January 30, FFO of $1.00 per share met the analyst consensus estimate and was a 6.3% increase over FFO of $0.94 in Q4 a year ago. Revenue of $727.50 million beat the estimate of $725.02 million and was a 3.97% increase over revenue of $699.70 million year-over-year.

Rayonier Inc (NYSE: RYN) February 1, FFO of $0.17 per share beat the analyst consensus estimate of $0.15 and was a 54.55% increase over FFO of $0.11 in Q4 a year ago. Revenue of $467.40 million beat the estimate of $229.75 million by 103.44% and was a 90.46% increase over revenue of $245.40 million year-over-year.

Next week, a number of REITs will report Q4 earnings, including WP Carey Inc (NYSE: WPC), Mid-America Apartment Communities Inc (NYSE: MAA), Annaly Capital Management, Inc. (NYSE: NLY), Rexford Industrial Realty Inc (NYSE: REXR), Simon Property Group Inc (NYSE: SPG) and Highwoods Properties Inc (NYSE: HIW).

WINNERS & LOSERS

📈 Biggest Winners This Week: Specialty and Mortgage REITs

Great Ajax Corp (NYSE: AJX) Up 10.53%
Rayonier Inc (NYSE: RYN) Up 3.68%
Equity LifeStyle Properties Inc (NYSE: ELS) Up 2.97%
Hannon Armstrong Sustnbl Infrstr (NYSE: HASI) Up 2.57%
Equinix Inc (Nasdaq: EQIX) Up 2.46%
Acres Commercial Realty Corp (NYSE: ACR) Up 2.26%

📉 Biggest Losers This Week: A very bad week for Office REITs

Brandywine Realty Trust (NYSE: BDN) Down 13.02%
Peakstone Realty Trust (NYSE: PKST) Down 12.00%
Kilroy Realty Corp (NYSE: KRC) Down 11.80%
Hudson Pacific Properties Inc (NYSE: HPP ) Down 11.70%
Douglas Emmett Inc (NYSE: DEI) Down 11.23%
Boston Properties, Inc. (NYSE:BXP) Down 11.09%
Piedmont Office Realty Trust, Inc. (NYSE: PDM) Down 10.84%
City Office REIT Inc (NYSE: CIO) Down 10.28%

Prices as of February 1, 12:00 PM

UPGRADES/DOWNGRADES:

NetSTREIT Corp (NYSE: NTST) February 1, Keybanc analyst Todd Thomas upgraded Netstreit from Underweight to Sector Weight.

There were no downgrades this week.

ONE BIG THING

Full Year Forecast: Kiss of Death for BXP

What: Boston Properties beats estimates on FFO and Revenue, but sells off after disappointing the street on Full year 2024 FFO guidance.

Who: Boston Properties, Inc. (NYSE: BXP) is a Boston-based office REIT with 53.3 million square feet across 188 properties, concentrated in Boston, NYC, Washington, D.C., San Francisco and Seattle. Boston Properties has been a member of the S&P 500 since 2006. About 10% of its portfolio is life science properties, which reduces the risk of companies downsizing because their employees can work from home. Its top 20 tenants include Google, Microsoft, Biogen, Fannie Mae and Bank of America. At the end of 2023, 89.9% of its offices were leased with a weighted average lease term (WALT) of 7.6 years.

How: After the bell on Tuesday, January 30, Boston Properties reported fourth-quarter operating results. FFO of $1.82 per share beat the estimates by a penny and revenue of $828.93 million beat the estimate of $813.32 million. That sounds great, right?

But Not So Fast: Boston Properties’ “Waterloo” came on forward guidance. Although Q1 FFO of $1.72-$1.74 came in above analyst estimates for $1.69 per share, the projection for full year 2024 FFO was a range between $7.00-$7.20. Unfortunately, the street was expecting $7.19, i.e., the high end of the range.

Thwack! The street was not happy with the wide range and $7.10 midpoint. The following morning, shares of Boston Properties were trading down over 5%. By Thursday morning, Boston Properties had lost 8.4% since the announcement. Several other office REITs, such as SL Green Realty Corp (NYSE: SLG), Hudson Pacific Properties Inc (NYSE: HPP) and Highwoods Properties Inc (NYSE: HIW) were also down heavily in sympathy.

Takeaway: Thus far in Q4 results, the number of REITs missing estimates has outweighed the ones beating estimates. Boston Properties beat the Q4 estimates, but the street always gives more weight to what will come next rather than looking in the rear view mirror. For Boston Properties this week, forward guidance was the kiss of death.

Lower interest rates may spark a better performance for REITs in 2024, but if forward guidance is going to disappoint the street, investors need to realize that could very well undo any gains helped by interest rate reductions.

HOUSING NEWS BRIEF

Staying Put: Boomers Take A Stand

What: Baby Boomers are increasingly deciding to remain in their homes for as long as possible, keeping available home-for-sale inventories low and contributing to higher real estate prices.

Who: Baby Boomers, the generation born between 1946 and 1964, estimated to be 38% of all homeowners. A 2021 AARP survey found that 77% of Americans over age 50 plan to stay living in their current home.

Why: Boomers are taking a stand to remain in their homes for as long as possible, and who (other than younger home buyers, frustrated about home prices) can blame them? Consider some of their reasons for staying put:

Comfortability with a home and location they’ve known for many years
Not wanting to trade a 3% or 4% mortgage interest rate for a 6%-7% rate
COVID-related fears of assisted living or other types of Senior housing
Capital Gains taxes for some whose homes have skyrocketed in value
Negligible differences in costs between older homes and newer condos
High monthly or quarterly HOA fees in 55 and older communities

Takeaway: In previous decades, Senior Citizens would often move in with relatives or downsize into smaller condos or Senior residences, and younger folks would buy their older homes and modernize them.

But that’s happening far less now, with higher home prices and frustrated would-be homebuyers as a result. It’s even spurred quarrels and bad feelings between the generations over social media.

However, Americans are very adept at overcoming problems and in time, it’s likely that this present conundrum will find some fresh solutions. In the meantime, the biggest winners in this stand-off between the generations will be the landlords and residential REITs such as Mid-America Apartment Communities and AvalonBay Communities Inc (NYSE: AVB).

ONE FOR THE ROAD

New REIT IPO Launches This Week

What: On January 29, American Healthcare REIT, Inc. announced the launch of its initial public offering (IPO) of 56 million shares of common stock, with an expected offering price between $12.00 and $15.00 per share. The new REIT will trade on the New York Stock Exchange (NYSE) under the symbol AHR.

Who: From its website, “American Healthcare REIT is a self-managed REIT that acquires, owns and operates a diversified portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, senior housing, skilled nursing facilities, hospitals and other healthcare-related facilities.” American Healthcare REIT is based in Irvine, CA and its founders purchased its first property in 2014. It was formed by the merger of Griffin-American Healthcare REIT III, Griffin-American Healthcare REIT IV, and American Healthcare Investors in 2021.

American Healthcare owns 298 healthcare properties across 36 states and the U.K., with 18.9 million square feet under management and includes 19,667 Senior Housing and Skilled Nursing beds. It has a gross investment value of $4.3 billion.

32.6% of the portfolio is medical office buildings, 35% Senior Housing, 27.5% Skilled Nursing, and the remainder is hospitals and debt.

At the midpoint of the offering price range, IPO proceeds of approximately $869 million are expected, including shares to be sold by underwriters. American Healthcare plans to use the net proceeds from the offering to repay approximately $703.80 million of debt in its credit facility. The IPO was backed by investment firm AHI Group Holdings.

Takeaway: As with all IPO’s, investors are cautioned to do their due diligence, because many IPO’s will fall below their IPO price within the first few months of trading.