👋 Happy Friday, Everyone. On Monday morning, investors saw what just a year ago looked unthinkable: 10 and 30-year treasuries moving above 5%. While stocks got crushed in early morning trading, they showed resiliency later, coming on strong Tuesday when rates stabilized around 4.85%. REITs were moving in tandem 1% higher and more. On Thursday, improved earnings among several REITs carried the sector higher, even though the major averages were selling off again. What can we say, it was an interesting week. We have a great edition lined up for you, let’s dive in before a word from our sponsor.

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REIT ROUND-UP

VICI Properties Inc (NYSE: VICI) October 19, announced it has completed the acquisition of 38 Bowling Entertainment Centers with Bowlero Corp for an aggregate purchase price of $432.90 million. The transaction will be a Sale-Leaseback one in which Bowlero will lease the properties with an initial total annual rent of $31.6 million (7.3% cap rate) in a triple-net lease.

Medalist Diversified REIT Inc (Nasdaq: MDRR) October 19, announced its Board of Directors has approved the repurchase of an additional 200,000 shares of common stock for a maximum price of $6.00.

Ellington Financial Inc (NYSE: EFC) October 20, announced that it and Great Ajax Corp (NYSE: AJX) have mutually terminated their planned merger agreement that had been announced last April. Ellington agrees to pay Great Ajax $5 million in cash and $11 million, as consideration for 1.66 million shares of Great Ajax common stock that Ellington purchased at $6.60 per share.

Easterly Government Properties Inc (NYSE: DEA) October 23, announced it has acquired a 35,005 square foot U.S. District Courthouse in Newport News, VA. Along with the acquisition is a new 10-year firm term lease extension that expires in 2033. Although a purchase price was not announced, Easterly did say that in 2023 it has now acquired four properties for an aggregate price of $80.4 million.

American Tower Corp (NYSE: AMT) October 26, announced that CEO/President Tom Bartlett will retire from his positions effective February 1, 2024. The Board of Directors has named Steven Vondran to succeed Mr. Bartlett. Mr. Vondran will assume the roles of Executive Vice President and Global Chief Operating Officer for the interim period, from November 1, 2023 until February 1, 2024.

Dividend News:

Getty Realty Corp. (NYSE: GTY) October 25, announced an increase in its quarterly dividend of 4.7% from $0.43 per share to $0.45 per share, payable on January 11, 2024 to shareholders of record on December 28, 2023. The annual dividend of $1.80 per share now yields 6.77%.

Equinix Inc (Nasdaq: EQIX) October 25, announced a 25% increase to its quarterly dividend from $3.41 to $4.26 per share, payable December 13 to shareholders of record on November 15, 2023.

Kimco Realty Corp (NYSE: KIM) October 26, announced a 4.3% increase in its quarterly dividend, from $0.23 to $0.24 per share. The dividend is payable December 21 to shareholders of record on December 7.

Third Quarter Earnings:

The earnings were coming better than the street expected this week, and several REITs moved higher after reporting.

📈 Biggest Winners This Week: Healthcare and specialty REITs were strong

• Geo Group Inc (NYSE: GEO) Up 10.83% 

• American Tower Corp (NYSE: AMT) Up 9.67%

• SBA Communications Corp (Nasdaq: SBAC) Up 8.87%

• Diversified Healthcare Trust (Nasdaq: DHC) Up 8.02%

• Medical Properties Trust Inc (NYSE: MPW) Up 7.97%

• Farmland Partners Inc (NYSE: FPI) Up 5.68%

• Outfront Media Inc (NYSE: OUT) Up 5.41%

📉 Biggest Losers This Week: Mortgage REITs were quite weak

• Great Ajax Corp (NYSE: AJX) Down 32.60%

• Veris Residential, Inc. (NYSE: VRE) Down 13.35%

• AGNC Investment Corp (Nasdaq: AGNC) Down 12.35%

• Invesco Mortgage Capital Inc (NYSE: IVR) Down 12.15%

• Alpine Income Property Trust Inc (NYSE: PINE) Down 11.48%

• ARMOUR Residential REIT, Inc. (NYSE: ARR) Down 10.23%

• Office Properties Income Trust (Nasdaq: OPI) Down 8.93%

• Dynex Capital Inc (NYSE: DX) Down 8.08%

Prices as of October 26, 12:00 PM

UPGRADES AND DOWNGRADES:

Healthcare Realty Trust Inc (NYSE: HR) October 24, BTIG analyst Michael Gorman upgraded Healthcare Realty Trust from Neutral to Buy and announced a $17 price target.

Equity Lifestyle Properties Inc (NYSE: ELS) October 23, Bank of America Securities analyst Jeffrey Spector downgraded Equity Lifestyle Properties from Buy to Neutral and lowered the price target from $70 to $64.

ONE BIG THING

No High-Five’s for 5%

Briefly: The 10 and 30-year Treasury bonds blasted over 5% on Monday morning, initially sending stock investors fleeing for the exits, prompting big sell-offs on REITs. A few noteworthy REIT examples across sub-sectors were:

• Realty Income Corp (NYSE: O), closed Friday at $49.35, opened Monday at $49.00 and hit bottom at $48.61 shortly thereafter.

• SL Green Realty Corp (NYSE: SLG) closed Friday at $32.20, opened Monday at $31.74, closed at $30.96.

• Prologis Inc (NYSE: PLD) closed Friday at $102.43, opened Monday at $101.33, and closed at $100.81. By Wednesday it was trading at a 52-week low of $98.53.

• Extra Space Storage Inc (NYSE: EXR) closed Friday at $109.49, opened Monday at $108.52 and closed at $108.13. By Wednesday, it was also near its 52-week low of $103.19.

• American Tower Corp: closed Friday at $160.09, opened Monday at $158.01 and bottomed soon after at $157.25.

What Happened: The 5% scare was just a bit too early for Halloween, and soon melted like the Wicked Witch in The Wizard Of Oz, allowing many REITs to come off their lows and rebound later in the day. By Tuesday, as the rates stabilized near 4.85%, those REITs were above the highs from last Friday. But rates began to rise again, and by mid-day on Thursday, REITs were all trading lower.

• Fall Out: Like one’s age after 40, 5% is only a number. It means nothing in itself, but it’s a round number that many investors are not accustomed to seeing and so it became a significant bearish event.

But for REITs, 5% is a big deal because many REITs still pay dividends at or below that yield. Investors continue to show that they prefer the safety of 5% fixed income assets to risking money on REITs for the potential appreciation along with the dividend that REITs provide.

HOUSING NEWS BRIEF

September Rental Rates Fall For The Fifth Straight Month

According to Realtor.com, rents for studio, 1-bedroom, and 2-bedroom apartment units fell 0.7% between August and September. Although the monthly drop seems small, it was the fifth consecutive month of declines and that’s significant.

The median monthly rent among the 50 largest U.S. cities was $1,747, about $29 below the peak in July 2022. Apartment construction is increasing. September completion of Multi-family buildings rose 10.1% from August and 15% year-over-year. Rental units for $1,850 or less were renting quickly, with almost 70% being occupied within three months of completion. But units above $1,850 only achieved a 57.2% occupancy rate within that same period.

Danielle Hale, Realtor.com’s Chief Economist said new renters are snapping up newly constructed apartments quickly, as it’s now estimated to be 52% more economical to rent than to buy in almost all the major markets.

Certainly that comes as no surprise to anyone who’s presently trying to find an affordable home, with inventory still tight and 30-year mortgage rates flirting with 8% or more.

Midwestern cities, such as Milwaukee, Cleveland and Indianapolis are now leading the U.S. in rental growth, with each attaining 3%-4% growth year-over-year. Large West Coast areas, like Los Angeles and San Francisco, continue to show the largest decreases in rents, from 3%-4% year-over-year.

Takeaway: Some softening of prices was to be expected, as inflation takes it toll on budgets, and student loan re-payments begin anew. But as long as high mortgage rates and tight inventories continue to impede home sales, the rental market should continue to be strong, even with new construction on the scene.

The one thing that could change the equation, and cause a larger drop in rents is a protracted recession with a large number of layoffs. Young tenants fled their apartments in the 2007-2009 recession to move back in with family or friends and 2024 could see a similar scenario, especially with much higher rents in 2023.

As for home prices, a decline in interest rates could help loosen inventory since many homeowners have 3% mortgages and would be more likely to move into another home should rates decline. On the other hand, lower rates might spur more buyers into action, thwarting any potential increase in inventory.

For now, with September’s numbers, renters can perhaps breathe a sigh of relief that prices are trending in their favor.

ONE FOR THE ROAD

Analysts: Kick ‘Em When They’re Down

What? Wells Fargo analyst downgrades CubeSmart (NYSE: CUBE) from Overweight to Equal-Weight and cuts the price target to $37.

Details: On October 24, Wells Fargo analyst Eric Luebchow downgraded CubeSmart from Overweight to Equal-Weight and cut the price target from $46 to $37.

Why? Luebchow’s downgrade at this time makes little sense, and it seems like piling on a stock when it’s down. CubeSmart has been in a downtrend since touching $47.78 in April 2023. On June 15, it was trading around $42.50 when Wells Fargo initiated coverage of CubeSmart with an Overweight recommendation.

On October 23, CubeSmart closed at $35.02. So it’s rated an Overweight at $42.50, but Equal-Weight after it drops another 16% from the first recommendation?

This downgrade, following a huge decline in share price is not unusual among analysts, and is like the old saying of “locking the barn door after the horse has bolted”. Realty Income Corp had a similar experience two weeks ago when Bank Of Securities downgraded it from Buy to Neutral, and SL Green Realty Corp was also the recipient of being kicked when down last March when Citigroup maintained its Sell rating on SLG and dropped the price target from $35 to $17. Except Citigroup had egg on its face when SL Green began to rally the very next day and surged from $19 to $42 within a little over six months.

The Takeaway: If these highly-paid analysts are so smart, why don’t they downgrade these stocks at the beginning of the decline? CubeSmart has been in a downtrend since July, but it was $10 higher then. Where was the downgrade then, when investors could have been spared further losses ?

The unfortunate bottom line is that investors who rely solely on analysts to help them make stock decisions often buy near the top or sell near the bottom. CubeSmart is incredibly oversold right now with a 14 period RSI of 24 and a stochastic reading below 4, and like SL Green Realty earlier in the year, could be ripe for a rebound.

Whatever happened to buy low, sell high?!

PRESENTED BY NADA

Own a Piece of Your Favorite City

Ever considered diversifying your investments with shares of an entire city? With Cityfunds by Nada, you can tap into real estate portfolios from cities like Austin, Dallas, Miami, and Tampa. Starting at just $10.88 per share, opportunities abound for both new and established investors.

What sets Cityfunds apart? Location. Access prime real estate in sought-after areas without the typical costs. Own fractional shares in homes and build passive income through rental dividends and home sales, all with the added advantage of a 10-15% acquisition discount.

With expert management at the helm, Cityfunds ensures a seamless venture. And soon, you'll be able to freely trade your shares on their upcoming Secondary Trading Platform in 2024.

Boasting 10,000 investors and a gross asset value over $35 million, Cityfunds is your gateway to the expansive $20T home equity market. Dive into the future of real estate investment today! 🏙️💼📈

Click here to explore the offerings and make your mark in top cities.