👋 Happy Friday, Everyone. Is supply and demand broken? US home sales volume decreased while value increased. We have the full breakdown here.  

🏠 Today's edition is brought to you by BAM Capital. Benzinga subscribers can invest in the firm’s latest fund, the BAM Multifamily Growth & Income Fund IV, which seeks to balance cash flow stability, capital preservation, and long-term capital appreciation while providing superior risk-adjusted returns to investors.

📈 Biggest Winners This Week: There were very few winners this week.

• Wheeler Real Estate Investment Trust Inc (NYSE: WHLR) Up 13.80%

• Sabra Health Care REIT Inc (Nasdaq: SBRA) Up 4.33%

• Modiv Industrial Inc (NYSE: MDV) Up 4.50%

• Strawberry Fields Reit Inc (NYSEAMERICAN: STRW) Up 2.40%

• Omega Healthcare Investors Inc (NYSE: CTRE) Up 1.11%

📉 Biggest Losers This Week: Several healthcare and office REITs were weak.

• Medical Properties Trust Inc (NYSE: MPW) Down 15.81%

• Office Properties Income Trust (Nasdaq: OPI) Down 12.64%

• City Office REIT Inc (NYSE: CIO) Down 10.81%

• Global Net Lease Inc (Nasdaq: GNL) Down 8.68%

• Universal Health Realty Income Trust (NYSE: UHT) Down 8.36%

• Western Asset Mortgage Capital Corp (NYSE: WMC) Down 8.05%

• Clipper Realty Inc (NYSE: CLPR) Down 7.56%

• NexPoint Residential Trust Inc (NYSE: NXRT) Down 7.26%

• DigitalBridge Group Inc (NYSE: DBRG) Down 8.11%

• Uniti Group Inc (Nasdaq: UNIT) Down 7.14%

Prices as of September 21, 12:00 Noon

ONE BIG THING

FED To Market: “Steady, More, Fewer”

Briefly: The Federal Reserve wrapped up its two-day FOMC meeting on Wednesday by announcing they are holding rates steady in September, but expect to initiate one more rate hike before the end of 2023 and there may be fewer rate cuts than previously indicated in 2024. The FED also said it will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

Why This Happened: The FED indicated in its new FOMC statement that economic activity is expanding at a solid pace and that job gains remain strong, despite slowing in recent months. They remain adamant about achieving maximum employment and inflation at the rate of 2% over the longer run.

Market Reaction: Wall Street was 99% sure the FED would hold rates steady at this meeting, so that decision was already baked into the numbers. The only mystery going into the meeting was what the FED would say about the remainder of 2023 and into 2024. And what they heard, they did not like.

• After a solid morning for all three major indices, with the Dow Industrial average up about 250 points, markets made an about-face following the announcement and the press conference, to finish near the lows of the day. Thursday morning began with another sell-off, with the 10-year bond up to 4.44%.

With Wall Street feeling that the bias appears to be toward higher rates and for a longer time frame, there is likely to be more volatility to the downside for the immediate future. REITs in particular, may find the going tough for a while longer.

What Can Investors Do? While nobody likes to lose money, there are some ways that investors can try to minimize their losses in the current climate. If one holds dividend stocks, the dividends do offset some losses, and the easiest thing to do is to just hold stocks and simply wait for share prices to come back.

• But if that feels too passive, one can sell their weakest dividend stocks now and hope to purchase them at lower prices later on. There are two risks to this strategy- stocks could instead move higher and dividend income would be lost.

Another strategy is to buy inexpensive puts on stocks owned as insurance. Puts can also offset losses if stocks move lower. More aggressive investors can buy inverse exchange-traded funds (ETFs) like the ProShares Short S&P 500 (NYSE: SH) and ProShares Short Dow 30 (NYSE: DOG). When the indices decline, these ETFs move higher.

For more conservative investors, holding cash in a brokerage money market right now will earn 5% interest and allow you to buy more shares of stock at lower prices and higher dividend yields, should markets correct again.

Final Remarks: The most popular saying on Wall Street is “Don’t fight the Fed”, and at the moment that sounds like very sage advice.

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.

This was a very busy week for upgrades (9) and downgrades (4). Despite the gloom over interest rates, it’s a positive to see more analysts looking out to the future and beginning to upgrade REITs.

UPS…..  

Cousins Properties Inc (NYSE: CUZ) September 15, Truist Securities Analyst Michael Lewis upgraded Cousins Properties from Hold to Buy, and raised the price target from $27 to $28.

Kimco Realty Corp (NYSE: KIM) On September 18, Mizuho analyst Haendel St. Juste upgraded Kimco Realty from Neutral to Buy, while lowering the price target from $21 to $20. Also, on September 20, Wells Fargo analyst Tammi Fique upgraded Kimco Realty from Underweight to Equal-Weight and announced a $20 price target.

AGNC Investment Corp (Nasdaq: AGNC) On September 18, UBS analyst Vilas Abraham upgraded AGNC Investment from Neutral to Buy and raised the price target from $10.50 to $11.50.

Annaly Capital Management, Inc. (NYSE: NLY) On September 18, UBS analyst Brock Vandervliet upgraded Annaly Capital Management from Neutral to Buy and raised the price target from $21 to $24.

Rexford Industrial Realty Inc (NYSE: REXR) September 19, Wolfe Research analyst Andrew Rosivach upgraded Rexford Industrial Realty from Peer Perform to Outperform and announced a $70 price target.

Site Centers Corp (NYSE: SITC) On September 20, Wells Fargo analyst Dori Kestern upgraded Site Centers from Underweight to Equal-Weight and announced a $15 price target.

Hudson Pacific Properties Inc (NYSE: HPP) September 20, BMO Capital analyst John Kim upgraded Hudson Pacific Properties from Market Perform to Outperform and raised the price target from $7 to $10.

Sabra Health Care REIT Inc (Nasdaq: SBRA) September 20, Jefferies analyst Jonathan Petersen upgraded Sabra Health Care REIT from Hold to Buy and raised the price target from $11 to $15.

Regency Centers Corp (NYSE: REG) September 20, Argus Research analyst Angus Kelleher-Ferguson upgraded Regency Centers from Hold to Buy and announced a $70 price target.

And Downs…..

Vornado Realty Trust (NYSE: VNO) On September 15 Truist Securities analyst Michael Lewis downgraded Vornado Realty from Buy to Hold, while raising the price target from $22 to $27.

Federal Realty Investment Trust (NYSE: FRT) On September 18, Mizuho analyst Haendel St. Juste downgraded Federal Realty Investment from Buy to Neutral and lowered the price target from $105 to $101.

Phillips Edison & Co Inc (Nasdaq: PECO) September 20, Wells Fargo analyst Tammi Fiquie downgraded Phillips Edison from Equal-Weight to Underweight and announced a $35 price target.

Ventas, Inc. (NYSE: VTR) September 20, Raymond James analyst Jonathan Hughes downgraded Ventas from Strong Buy to Outperform and lowered the price target from $55 to $53.

REIT ROUND-UP

Plymouth Industrial Reit Inc (NYSE: PLYM) On September 18, Plymouth Industrial announced it sold its 306,552-square-foot Industrial Building in Chicago For $19.9 Million To An Undisclosed Owner. Plymouth's net proceeds after the payoff of a $5.8 million mortgage and other adjustments are $13.9 million. The Company intends to use the proceeds to pay down outstanding borrowings on its credit facility and fund its development program.

Agree Realty Corporation (NYSE: ADC) September 18, promoted Nicole Witteveen to COO and announced the addition of Edward Eickhoff as Executive Vice President, Asset Management.

Summit Hotel Properties Inc (NYSE: INN) September 20, announced that along with private investor GIC, it has completed refinancing of its $200 million Senior facility. $125 million will be a revolving credit facility and $75 million will be a term loan.

WP Carey Inc (NYSE: WPC) September 21, announced it will be selling off the large majority of its office portfolio in a separate publicly-traded REIT by January 2024.

HOUSING NEWS BRIEF

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) was released on September 18, with some dour news. Builder confidence levels for newly built single-family homes fell five points from August’s 50 rating to 45 in September. Confidence has fallen 11 points over the past two months and that coincides with 30-year mortgage interest rates climbing over 7%. The index ranges from 1-100, with 50 and above positive, while any number below 50 is considered as negative.

Builders continue to have shortages of construction workers, buildable lots and distribution transformers. Compared to a year ago, the August housing starts numbers were down an ugly 14.8% and building permits were off 2.7%.

Prospective buyers are still sitting on the sidelines, awaiting price declines and/or lower interest rates that may or may not come. Historically, when interest rates have risen, prices decline. However, a shortage of inventory (due to homeowners not wanting to relinquish 3% mortgages to buy a more expensive home with a 7% mortgage) continues to support high prices.

Some builders were forced to reduce prices about 6% or rely on incentives to sell homes. But 6% may not be enough. Principal and interest on a $400,000 home with a 5% down payment and a 30-year loan at 7% is $2,528 per month.

A 6% discount lowers the sales price to $376,000. With 5% down and a 7% loan rate, the payment drops to $2,376- still quite unaffordable for many young buyers, who also need $15,000 to $20,000 for a down payment, depending on the type of loan, and closing costs. Plus, the $2,376 doesn’t include taxes, insurance, and Homeowners Association (HOA) or Community Development District (CDD) fees. These can add on another $500 to $800 per month, depending on the home’s location.

The current housing conundrum should continue to boost REITs that rent apartments and single-family homes, such as Mid-America Apartment Communities Inc (NYSE: MAA), AvalonBay Communities Inc (NYSE: AVB) and Invitation Homes Inc (NYSE: INVH). However, homebuilder stocks like Lennar Corp (NYSE: LEN), DR Horton Inc (NYSE: DHI) and KB Home (NYSE: KBH) have been declining since July, and more pain may be on the way.

ONE FOR THE ROAD

REIT Price Target Cuts: No Let Up

What Happened: Again this week, several analysts lowered price targets on REITs, whether they were maintaining, downgrading or even upgrading previous ratings. 15 REITs had their price targets cut between September 13-19, including Federal Realty Investment Trust (NYSE: FR), Sun Communities Inc (NYSE: SUI), Kimco Realty Corp (NYSE: KIM), Extra Space Storage Inc (NYSE: EXR), Park Hotels & Resorts Inc (NYSE: PK) and American Tower Corp (NYSE: AMT).

Long Declines: Most REITs are down significantly from their prices in January 2022, a few months before inflation triggered the FED to start raising interest rates. Here are some examples of the price deterioration, even among leading REITs from different sub-sectors:

What’s The Deal? So why are analysts lowering price targets, even as the market moves closer to the end of the higher interest rate cycle? And why are investors selling dividend paying REITs?

The answer- it’s all about safety of principal and the interest rates received from various assets. If the U.S. 10-year Treasury bond pays 4.44% with zero risk, why risk capital on a REIT paying a 4.44% dividend yield? If a 12 month brokered CD is paying 5.60%, why would one invest in a REIT like Realty Income, for the same yield?

Of course, the flip side of risk is reward and by investing in a CD one misses out on any potential appreciation the REIT may generate. If the FED raises rates in November but then declares, “we believe this is the last hike”, Realty Income could rally back to $60 or $65. Money tied up in a CD will not benefit from such a move.

And REITs can lift their yields by raising dividends or via occasional bonus dividends, something one can’t get from a CD unless you buy a CD ladder. Investors like how the ladder’s yield rises throughout the term, but the downside is ladders have lower yields on the front end than a fixed CD.

The Takeaway: There are almost 70 million aging Baby Boomers and 63% of them own stocks. In retirement, many investors prefer the peace of mind they receive from a no-risk asset, even if it means missing opportunities for gains. And while income investors often say they don’t care about stock price as long as the dividend checks continue, it’s difficult to resist the temptation to sell when your shares are down 30% or 40% from your purchase price.

So this is a tough time to be a REIT investor and analysts aren’t letting up on slashing price targets. For now, let’s just say, “caveat emptor”.

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.