Happy Friday! Another week of FOMC meetings and even Nvidia’s AI conference had investors on edge. And while there was no surprise from the FED, investors saw that as good news and stocks rallied. The FED held rates steady and reiterated it’s maintaining its forecast for three interest rate cuts in 2024.

FED Chairman Jerome Powell said inflation is still moving gradually toward 2%, despite the often bumpy road, and minimized the recent increases in the CPI and PPI, noting, “We’re not going to overreact to these two months of data, nor are we going to ignore them.” 10 of the 19 FED officials still see the policy rate falling by the end of 2024 as much as three-quarters of a percent.

This was good news for REITs and about 70% of them were rallying this week.

In This Issue: Equinix has a potential “Hindenburg disaster” on its hands, NAR settles its lawsuit and changes the way homes have been sold for 50+ years, and Hudson Pacific Properties could be on the comeback trail.

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:

ARMOUR Residential REIT, Inc. (NYSE: ARR) March 15, announced the resignation of Jeffrey J. Zimmer, the Co-CEO, President, Vice Chairman and Director of the company. Mr. Zimmer will continue serving as a Co-Managing Member of ARMOUR Capital Management LP, ARMOUR’s external Manager, to advise on various financial matters.

U-Haul Holding Co (NYSE: UHAL) March 15, announced it has acquired the Duke Mini Storage Facility in East Peoria, IL. The property is 5.41 acres and has 58 self-storage units and 99 covered RV, boat and vehicle storage facilities.

CTO Realty Growth Inc (NYSE: CTO) March 19, announced the sale closing of its 136,000 square foot mixed-use property in Santa Fe, N.M. for approximately $20.0 million, generating a gain of approximately $4.6 million. Proceeds from the sale will be used to fund the 1031 Exchange acquisition of the Marketplace at Seminole Towne Center, a core power center in Sanford, FL, announced the following day. The 318,000 square foot multi-tenant center was purchased for $68.7 million.

Outfront Media Inc (NYSE: OUT) March 19, announced the expansion of its Transit Advertising via active Liveboards inside almost all of the subway stations throughout New York City and parts of the Long Island and Metro North Railroad systems.

Piedmont Office Realty Trust, Inc. (NYSE: PDM) March 20, announced the completion of the sale of One Lincoln Park in Dallas, TX for $54 million. Net proceeds from the sale were used to pay off the approximately $50 million balance of Piedmont’s 2024 Senior Unsecured Notes that mature this month.

DIVIDEND NEWS:

Caretrust REIT Inc (NYSE: CTRE) March 18, increased its quarterly dividend from $0.28 to $0.29 per share, payable April 15 to shareholders as of the close of business on March 28.

INSIDER PURCHASES:

VICI Properties Inc (NYSE: VICI) On March 14 and 15, Director James R. Abrahamson purchased a total of 10,000 shares of common stock at prices between $28.70 and $28.90.

WINNERS & LOSERS

📈 Biggest Winners This Week: Office and Mortgage REITs were strong

• Acres Commercial Realty Corp (NYSE: ACR) Up 20.07%

• Geo Group Inc (NYSE: GEO) Up 17.71%

• Vornado Realty Trust (NYSE: VNO) Up 16.12%

• City Office REIT Inc (NYSE: CIO) Up 14.52%

• NewLake Capital Partners Inc (OTCMKTS: NLCP) Up 14.14%

• Office Properties Income Trust (Nasdaq: OPI) Up 13.27%

• SL Green Realty Corp (NYSE: SLG) Up 10.15%

📉 Biggest Losers This Week: Specialty REITs were weaker

• Equinix Inc (Nasdaq: EQIX) Down 5.93% (see story below)

• Medalist Diversified REIT Inc (Nasdaq: MDRR) Down 5.00%

• American Tower Corp (NYSE: AMT) Down 2.01%

• Clipper Realty Inc (NYSE: CLPR) Down 1.90%

• Universal Health Realty Income Trust (NYSE: UHT) Down 1.83%

Upgrades:

Hudson Pacific Properties Inc (NYSE: HPP) See the “One For The Road” article below.

Equity Residential (NYSE: EQR) March 18, Raymond James analyst Buck Horne upgraded Equity Residential from Underperform to Market Perform.

Essex Property Trust Inc (NYSE: ESS) March 18, Raymond James analyst Buck Horne upgraded Essex Property Trust from Market Perform to Outperform and announced a $265 price target.

Ventas Inc (NYSE: VTR) March 18, Evercore ISI Group analyst Steve Sakwa upgraded Ventas from In-Line to Outperform and announced a $50 price target.

Paramount Group Inc (NYSE: PGRE) March 18, Evercore ISI Group analyst Steve Sakwa upgraded Paramount Group from Underperform to In-Line and announced a $5 price target.

… and Downgrades:

Apartment Income REIT (NYSE: AIRC) March 18, Raymond James analyst Buck Horne downgraded Apartment Income REIT from Outperform to Market Perform.

NexPoint Realty Trust Inc (NYSE: NXRT) March 18, Raymond James analyst Buck Horne downgraded from Market Perform to Underperform

Prologis Inc (NYSE: PLD) March 18, Evercore ISI Group analyst Steve Sakwa downgraded Prologis from Outperform to In-Line and announced a $136 price target.

Invitation Homes Inc (NYSE: INVH) March 18, Evercore ISI Group analyst Steve Sakwa downgraded Invitation Homes from Outperform to In-Line and announced a $36 price target.

SL Green Realty Corp (NYSE: SLG) March 18, Evercore ISI Group analyst Steve Sakwa downgraded Invitation Homes from In-Line to Underperform and announced a $44 price target.

Equinix Inc (Nasdaq: EQIX) March 20, HSBC analyst Phani Kanumuri downgraded Equinix from Buy to Hold and announced a $900 price target. See story below.

ONE BIG THING

Equinix Rocked On A Hindenburg Disaster

What: On March 20, Hindenburg Research announced in a 10,000 word report on its website that it’s taken a short position against Equinix Inc (Nasdaq: EQIX), and accused the data center REIT of financial manipulation to boost the appearance of profitability, as well as selling its shareholders an “AI Pipe Dream”.

How: Hindenburg alleges that Equinix has been reporting large maintenance expenses as spending on growth to make it seem that the “company’s cost to maintain its revenue base is lower than it actually is.”

Hindenburg claims that former Equinix employees and executives have admitted that it was top management who pressured them to misclassify capex as growth rather than maintenance. Hindenburg further notes that “questionable accounting” enabled Equinix to boost its Adjusted funds from operations (AFFO), which also determines executive stock grants.

Hindenburg further alleges that Equinix’s manipulation of maintenance capex has resulted in a cumulative $3 billion boost to AFFO since Equinix converted to REIT status in 2015.

Who: Equinix is a Redwood City, CA based specialized REIT that owns and operates a network of over 250 data centers across 71 major metropolitan areas, providing critical infrastructure to over 10,000 customers and 260 Fortune 500 companies across 32 countries. Founded in 1998, and a REIT since 2015, Equinix has 456,000 total interconnections. Some of its largest customers include Amazon, Google and Microsoft.

Equinix is a growth REIT, rather than an income REIT. It’s dividend yields less than 2%, yet over the last ten years it’s returned approximately 420% to shareholders.

Takeaway: On Wednesday morning, following the announcement, Equinix shares, which were already down this month from $914.93 to Tuesday’s close of $844.58, fell another 5.6% and touched a low of $796.90. But Oppenheimer analyst Timothy Horan responded with a report maintaining an Outperform rating on Equinix and even raised the price target from $875 to $950. That helped steady the stock, and with REITs rallying after the FED announcement, Equinix showed great resiliency to finish the day down 2.33%.

An Equinix spokesperson told CNBC, “We are investigating the claims and we will respond in due course.” Ok, but shareholders may be looking for more encouraging words in the near future from management to avert this potential “Hindenburg disaster.”

Death Of The 6% Real Estate Commission

What: On March 15, The National Association of Realtors (NAR) announced a settlement with the group of home seller plaintiffs in the November 2023 antitrust lawsuit against NAR, by paying $418 million in damages over four years and eliminating rules on paying buyers’ agents a commission in home sale listings. The ruling resolves all claims against NAR and its one million members and if approved by a federal court, takes effect in July.

How: As discussed here a few months ago, the lawsuit was brought against NAR by a group of home sellers, charging NAR and various Real Estate Brokerages unfair business practices in having the home seller pay both sides of the commission when listing their home for sale. NAR lost in court, and the jury awarded the plaintiff $1.8 billion in damages. NAR appealed the ruling but ultimately decided to give in and settle. Had they lost on appeal, NAR could have potentially had to pay triple damages of $5.4 billion. 

Over the last 50 years, listing agents would charge the seller a commission, typically 6%, and then advertise the listing in the Multiple Listing Service (MLS) so other Realtors could show the house to their customers. If another Realtor brought a contract, the 6% commission would be split between the two Brokerage companies. The plaintiffs felt the buyer should be responsible for paying the buyer agent commission. The jury agreed.

Now What: The death of the 6% commission changes everything in home sales and is likely to result in thousands of Realtors who primarily work with buyers quitting the profession. Buyer agent commissions can no longer be published on the MLS and agents are no longer required to pay MLS dues. The only way for a buyer’s agent to make money now will be to negotiate a fee for showing buyers homes or a small commission when a contract closes.

Without the MLS, it may take longer for homes to sell. Listing agents will get a much higher percentage of buyers and will probably have to pay fees to other agents from the same Brokerage to work with all the buyers they can’t handle.

The media’s take is that with a reduced commission, the sellers will lower their price, thus creating a better situation for buyers. But buyers who don’t want to pay a buyer’s agent fee will have to compete with other buyers in working solely with the listing agent. There’s also no guarantee that sellers will want to lower their asking price. It’s typical for sellers who go the “For Sale By Owner” (FSBO) route not to reduce their asking price even though they won’t pay a commission if their home sells without an agent involved.

Even if the seller reduces the price by 3%, the down payment and closing cost savings are far less than the home price. For example, on a $400,000 home, a 3.5% FHA down payment is $14,000. If the seller drops the price 3% ($12,000) to $388,000, the 3.5% down payment becomes $13,580. The percentage of savings is the same, but the $420 saved is nowhere near the $12,000 price reduction. Some, but not all of the closing costs are related to the home price. So buyers are still going to have a tough time coming up with down payments and closing costs.

Takeaway: The settlement of this lawsuit generates many new questions about what home selling will become in the future, and like the foreclosures of 2008 and the COVID-19 pandemic, may hold some future repercussions that nobody expects at the moment. 

ONE FOR THE ROAD

Hudson Pacific Reinstates Dividend, Investors Hope For A Comeback

What: On March 8, Hudson Pacific Properties Inc (NYSE: HPP) announced its Board of Directors will reinstate the quarterly dividend on its common stock at $0.05 per share, or $0.20 annualized. The dividend will yield about 3.05% at present levels.

Who: Hudson Pacific Properties is a Los Angeles-based office REIT with 48 office properties and six motion picture studios, with an emphasis on centers of innovation for media and tech companies in California, Washington State, and Vancouver, British Columbia. Its occupancy rate at the end of 2023 was 80.8%, down from 88% at the end of 2022.

On February 12, Hudson Pacific reported its Q4 operating results. FFO of $0.14 per share not only missed the consensus estimate of $0.15 per share, but more importantly, fell from $0.49 per share in Q4 2022. What’s more, FFO has declined in every consecutive quarter since Q4 2022. Revenue of $223.42 million missed the estimate of $223.93 million and was 17.2% below revenue of $269.93 million in the year ago same quarter.

History: In June 2023, even before the massive strike of both Hollywood actors and screenwriters began, Hudson Pacific Properties cut its quarterly dividend from $0.25 per share to $0.13 per share. The strike began in July, and in September, Hudson Pacific announced it was forced to suspend the dividend entirely.

Over the past six months, Hudson Pacific has dealt with lease expirations and other companies moving out, both contributing to a decline in operating income. On February 20, Wedbush Securities analyst Richard Anderson downgraded Hudson Pacific from Outperform to Neutral and slashed his $11 price target to $7.50. Hudson Pacific shares, which touched $9.78 at the very beginning of 2024, have recently fallen over 34% to $6.38.

Clearly, this is a REIT that has not performed well for some time.

Turn Around: But there is some good news at last- in addition to the dividend reinstatement, albeit at a lower level, on March 18, Wolfe Research analyst Andrew Rosavich upgraded Hudson Pacific Properties from Peer Perform to Outperform, while announcing an $8.40 price target. With Hudson Pacific recently trading around $6.50, that’s a potential increase of almost 30%. Other analysts are feeling more bullish about Hudson Pacific recently as well.

In Rosavich’s view, the worst is likely behind Hudson Pacific in declining occupancy. Earnings should begin to improve, and recent asset sales have reduced Hudson Pacific’s past exposure to high interest rate floating debt and upcoming loan maturity dates.

Takeaway: Hudson Pacific shares climbed 1.5% on Monday morning after the announcements. Investors are keeping their fingers crossed that the Wolfe Research analyst is right and that the interest rate cuts that the FED continues to forecast for 2024 eventually come to fruition.

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.