Happy Friday! As the second quarter began, stocks ran up against resistance as Treasury yields climbed this week, following FED Chairman Jerome Powell’s remarks on Friday that economic growth remains strong, the labor market is strong and inflation, while coming down, is still above the FED’s target rate. The personal consumption expenditures price index, released on Friday, showed inflation rising 2.8% annualized in February.

As a result, interest rate sensitive REITs were getting hammered the first part of this week, putting the brakes on what had been a fairly robust first quarter. Some of them were rebounding on Thursday morning, as traders await Friday’s employment numbers.

In This Issue: “Higher for longer” continues as inflation remains “sticky,” nearly 20,000 sign up for only 113 affordable apartment units, and it’s “Deja Vu, all over again,” as Global Net Lease slashes its dividend yet again.

REIT ON FOR MORE!

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 ROUNDUP:

Rexford Industrial Realty Inc (NYSE: REXR) March 28, announced it has acquired approximately three million square feet of industrial properties from Blackstone (NYSE: BX) for an aggregate purchase price of $1.0 billion.

Terreno Realty Corp (NYSE: TRNO) April 1,announced it sold a 25,000 square foot industrial property in Seattle, WA for $11.0 million. Terreno Realty purchased the property in May 2016 for approximately $4.7 million.

Caretrust REIT Inc (NYSE: CTRE) April 2, announced it purchased three continuing care retirement communities in Southern California for $60 million. The campuses include 475 assisted living, skilled nursing, and memory care beds/units. All facilities will be operated by Bayshire Senior Communities, one of Caretrust’s tenants.

Independence Realty Trust Inc (NYSE: IRT) April 2, announced the closing of the sale of three properties in three markets for $168.1 million. The sale was part of 9 of 10 targeted properties for sale since October 2023. Independence has now repaid $488.9 million in debt as a result of these sales.

Digital Realty Trust Inc (NYSE: DLR) April 2, announced it’s been selected to host one of the world’s most powerful AI supercomputers at an AI-ready data center in Copenhagen, Denmark. The supercomputer will be powered by NVIDIA Corp (Nasdaq: NVDA).

LTC Properties Inc (NYSE: LTC) April 3, announced it has originated a $12.7 million senior loan to Ignite Medical Resorts, one of its operators, to purchase a skilled nursing and assisted living campuses in Katy, Texas. The five-year loan is interest only at a current rate of 9.15%. LTC expects the investment to generate approximately $884,000 of revenue in 2024.

WINNERS & LOSERS

📈 Biggest Winners This Week: Self-Storage, Industrial REITs

• Indus Realty Trust Inc (Nasdaq: INDT) Up 2.50%

• Net Lease Office Properties (NYSE: NLOP) Up 1.89%

• Extra Space Storage Inc (NYSE: EXR) Up 1.39%

• Seritage Growth Properties Class A (NYSE: SRG) Up 1.35%

• BRT Apartments Corp (NYSE: BRT) Up 1.13%

• Armada Hoffler Properties Inc (NYSE: AHH) Up 1.15%

• Braemar Hotels & Resorts (NYSE: BHR) Up 1.00%

📉 Biggest Losers This Week: Healthcare, office and retail REITs

• Healthpeak Properties Inc (NYSE: DOC) Down 8.80%

• City Office REIT Inc (NYSE: CIO) Down 8.25%

• Brandywine Realty Trust (NYSE: BDN) Down 7.92%

• Industrial Logistics Property Trust (Nasdaq: ILPT) Down 6.76%

• Peakstone Realty Trust (NYSE: PKST) Down 6.39%

• Medical Properties Trust Inc (NYSE: MPW) Down 6.17%

• Macerich Co (Nasdaq: ILPT) Down 6.15%

• Whitestone REIT (NYSE: WSR) Down 5.74%

Upgrades:

Healthpeak Properties Inc (NYSE: DOC) April 1, Bank of America Securities analyst Joshua Dennerlein upgraded Healthpeak Properties from Underperform to Buy and raised the price target from $18 to $25.

Essex Property Trust Inc (NYSE: ESS) April 1, Bank of America Securities analyst Joshua Dennerlein upgraded Essex Property Trust from Neutral to Buy and raised the price target from $250 to $275. 

… and Downgrades: There were none this week!

Dividend News:

UMH Properties Inc (NYSE: UMH) April 1, announced an increase in its quarterly dividend from $0.205 to $0.215 per share, payable June 17 to shareholders at the close of business on May 15. The annualized dividend of $0.86 yields 5.39%.

Earnings News:

American Strategic Investment Co (NYSE: NYC) April 1, FFO of $(0.52) per share, missed the consensus estimate of $(0.07) per share and was a 372.73% decrease from Q4 2022 of $(0.11) per share. Revenue of $15.38 million missed the estimate of $16.53 million and was also below Q4 2022 revenue of $16.20 million.

Seritage Growth Properties Class A (NYSE: SRG) April 2, FFO of $(2.85) was below FFO in Q4 2022 of $(1.59). Revenue of $20.78 million was well below Q4 2022 revenue of $107.06 million.

ONE BIG THING

“Dude, Where’s My Recession”?

What: February’s inflation data shows the recession everyone kept expecting in 2023-2024 is still not here—or at least not being acknowledged by the usual economic stats. This has had the effect of tempering REIT rallies from the first quarter of 2024.

Why: The Consumer Price Index (CPI) rose 0.4% for all items in February. Although food prices were unchanged for the month, gasoline prices rose 3.8% in February after two consecutive months of decline. Core CPI rose 0.4% month-over-month and 3.8% year-over-year. Rents and medical care services were the biggest inflationary culprits.

How: Consumers are still spending money like it’s the end of the world, even if it’s to buy inflationary goods on maxed out credit cards. Consumer spending increased $145.5 billion (0.8%) in February. The personal savings rate is now at 3.6%. To give a historical perspective, from 1959 to 2024, the average personal savings rate averaged 8.48%. A low of 1.40% was hit in 2005, but it took two more years until a recession was reached.

Despite a 0.2% increase in the unemployment rate to 3.9%, markets seem indifferent to the possibility of recession. Rents on industrial properties are 6% higher than a year ago. Workers are trying to play a catch up game with inflation, by demanding increased wages. But businesses have countered increased wages on low-level service jobs with worker layoffs, more automated services in fast-food restaurants and supermarkets and higher food prices.

At the end of January, 8.9 million Americans were working two or more jobs, up from 8.4 million in October. The “gig economy” (short term or freelance jobs) is booming as people look to increase their incomes. But the increased incomes are also adding to the inflationary spiral.

Takeaway: Dude, where’s my (soft landing) recession? Just how long will markets patiently wait for the FED to lower interest rates? Can REITs hold their present levels?

The market may in fact be running out of patience. This week, the second quarter began with a rocky start, following Jerome Powell’s remarks on Good Friday that strong labor markets and economic growth, along with inflation still above the FED’s target rate of 2%, leaves the FED is in no hurry to cut rates.

As a result, interest rate sensitive stocks, such as REITs were hit hard this week, with only about 15% of them making gains. Even stalwart REITs like Simon Property Group Inc (NYSE: SPG), Realty Income Corp (NYSE: O), EPR Properties (NYSE: EPR), and SL Green Realty Corp (NYSE: SLG) are down 2%-5% from the day before Good Friday.

Remember the talk about REITs soaring on lower interest rates? That will just have to wait a while longer. In the meantime, investors holding onto REITs from higher prices will have to take solace that dividends are knocking their cost bases down. But investors with cash on the sidelines who are looking for high dividend yielding REITs could soon find a plethora of REITs from which to choose.

Rental Crisis: 20,000 Apply for 113 Housing Slots

What: A South Florida lottery, created to select financially strapped applicants for a brand new affordable housing development, was overwhelmed when nearly 20,000 people applied to live in 113 total units.

Where: Timothy Wheat, the developer of the $93 million Pinnacle 441 apartment complex in Hollywood, Florida, was astounded when he learned that nearly 20,000 applicants had signed up for Phase I of two projects that were purposely designed to provide affordable housing for households earning 60% or less of the median income for the area. The 1-3 bedroom apartments are slated to rent for $1100-$1400 per month in a locale where median rents normally range between $2500 to $2800 per month.

Why: A 2022 Broward County Affordable Housing Needs Assessment found that 62% of Broward renters were “cost burdened”, a term meaning that more than 30% of their income was being allocated toward rent. In fact, 52% of those renters surveyed had more than half of their incomes being spent on rent.

Takeaway: There’s been much discussion this year about new apartment complexes being built that could provide competition for tenants with REITs, such as Mid-America Apartment Communities Inc (NYSE: MAA) and AvalonBay Communities Inc (NYSE: AVB). But unless new apartment complexes feature more affordable rents, it’s doubtful they can pull tenants away from pre-existing units owned by residential REITs. And given the higher costs today of materials and labor, it’s quite unlikely that new apartment units can be profitable without charging even higher rents than those currently in the market place.

Politicians like to say things like, “We need more affordable housing”, but keep in mind that the Pinnacle 441 apartment complex took five years to plan, develop and build. Even if more complexes like these are designed to help provide affordable housing, it will take years to accommodate all of the households nationwide that are presently burdened by unaffordable rents.

So where does that leave the 19,887 “cost burdened” renters that missed out on the Pinnacle 441 complex lottery? They’re in the same leaky boat as a large percentage of the other 44 million Americans who rent homes and apartments.

ONE FOR THE ROAD

Another Dividend Cut For Global Net Lease!

What: On April 1, Global Net Lease Inc (NYSE: GNL) cut its quarterly dividend by 22.3% from $0.354 per share to $0.275 per share.

Who: Global Net Lease is a New York based, net-lease diversified REIT, founded in 2011. Global owns a portfolio of 1296 properties covering 66.8 million square feet across 11 countries. It’s lease rate of 96% has a weighted average lease term (WALT) of 6.8 years. 80% of its properties are in the U.S. or Canada and another 20% are in Europe.

History: This is not the first time that Global Net Lease has slashed its dividend.  As beloved 1960’s New York Yankee catcher Yogi Berra once quipped, “It’s like deja vu all over again.” Take a look at Global’s five-year dividend history:

• April 2019 $0.18 per share (stock trading around $11)

• July 2019 $0.53 per share (stock up over 50% in the past year)

• April 2020 $0.40 per share (COVID-19 induced cut)

• October 2023 $0.354 per share (share price slide from $13.94 to $7.29)

• April 2024 $0.275 per share (shares still languishing at $7.76).

Takeaway: With a recent dividend yield of around 18%, it’s not surprising that Global Net Lease is slashing its dividend again. Global Net’s FFO has declined from a range of $0.42-$0.48 between 2021 and 2022 to $0.27, $0.24, and $0.21 over the past three quarters. Revenue has risen significantly over the last six months thanks to Global Net’s merger with The Necessity Retail REIT in September 2023. Yet earnings have declined significantly.

Obviously a change was needed in management, and it’s now been realized. In early March, President/Co-CEO James L. Nelson notified the Board that as of March 31, he would resign, and Edward M. Weil, Jr. would continue on as the sole CEO. In addition, on March 21, Robert Kauffman, the co-founder of Fortress Investment Group LLC, was named to the Global Net Lease Board of Directors.

Analysts have recently weighed in on Global Net Lease. On March 8, BTIG analyst Michael Gorman downgraded Global from Buy to Neutral. On March 28, Truist Securities analyst Anthony Hau initiated coverage on it with a Hold rating and a $7 price target. It was recently trading at $7.35 per share.

Analysts are obviously not feeling the love and neither should investors until notable improvements are forthcoming. Even then, investors may not have much trust in a REIT that has slashed its dividend three times over the past five years.

Global Net Lease is the classic example of a stock that is often called a “yield trap” and points out why investors should never buy a stock simply for its high dividend yield. Despite the latest cut, the yield is still over 14%. But how long will that last? We shall see.

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.