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OHI Commits $10 Million To Bankrupt Nursing Home Operator
Analyst Stock Ratings: In Need Of A Makeover?
Ethan Roberts
June 10, 2024
Happy Friday! It’s been an interesting week. Last Friday, the Core PCE came in at 2.8% year-over-year and 0.2% month-over-month. The monthly number was below expectations of 0.3% while the annual was as expected. Since this is the FED’s preferred measure of inflation, interest-sensitive REITs and the Nasdaq rallied after the news. Vanguard Real Estate Index Fund ETF (VNX) was up 2.17% this week.
On Wednesday, ADP reported only 152,000 jobs added in May, below the Dow Jones consensus estimate of 175,000 and far less than the April revised figure of 188,000. Traders on Thursday were anxiously awaiting this Friday’s jobs report.
In This Issue: Omega Healthcare Investors lends a troubled operator a hand, renters dig in for the long-term and analyst stock ratings are put under the microscope.
REIT ON!
PRESENTED BY DLP CAPITAL
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DLP Housing Fund: 10-12% targeted annual net return, 6% preferred return paid monthly.
DLP Building Communities Fund: 11-13% targeted annual net return. 8% preferred return paid quarterly.
There’s more, including the DLP Lending Fund and the DLP Preferred Credit Fund.
REIT ROUNDUP:
Four Corners Property Trust Inc (NYSE: FCPT) Last week we detailed the many properties that Four Corners Property Trust has recently acquired. But still, Four Corners weren’t finished. On May 31, Four Corners announced the acquisition of a BluePearl Pet Hospital for $1.9 million and a National Veterinary Associates property, for $2.0 million. Both of these properties are located in Michigan and were priced with a 7.9% cap rate, exclusive of transaction costs.
Welltower Inc (NYSE: WELL) June 3, announced it will increase its quarterly dividend by 10% from $0.61 to $0.67 per share as of the second quarter of 2024. Welltower also announced it has raised its 2024 FFO guidance from $4.02-$4.15 to $4.05-$4.17.
Tanger Inc (NYSE: SKT) June 3, announced it will bring five new Sephora stores to each of five Tanger outlet malls this year, each one averaging approximately 5,000 square feet of space.
Chatham Lodging Trust (NYSE: CLDT) June 3, announced that its RevPAR grew by 5% quarter-to-date through May, besting its own Q2 guidance of 2.5% to 4%. April occupancy was up 6% to 83% and May occupancy was up 4% to 82%. On May 31, Chatham also announced the acquisition of the brand new, six-story, 148-room, Home2 Suites Phoenix Downtown. The purchase price was $43.3 million.
Realty Income Corp (NYSE: O) June 4, announced it’s lifting its full-year 2024 guidance for FFO from $4.17-$4.29 to $4.19-$4.28 and AFFO from $4.13-$4.21 to $4.15-$4.21.
WP Carey Inc (NYSE: WPC) June 4, announced it’s acquired three Arizona properties, comprising a newly-built 300,000 square foot distribution center for $40 million and two fitness facilities leased to a pre-existing tenant for $28 million.
Federal Realty Investment Trust (NYSE: FRT) June 4, announced it acquired Virginia Gateway Retail Center, a 665,000 square foot retail center in Gainesville, VA, for $215 million. The center is 95% occupied with high traffic counts in an affluent and growing market area.
Dividend News:
Essential Properties Realty Trust Inc (NYSE: EPRT) June 4, announced an increase to its quarterly dividend from $0.285 to $0.29 per share, payable July 12 to shareholders as of close of business on June 28.
Universal Health Realty Income Trust (NYSE: UHT) June 5, announced an increase to its quarterly dividend from $0.725 to $0.73
WINNERS & LOSERS
📈 Biggest Winners This Week: Hotel and Residential REITs
Medical Properties Trust Inc (NYSE: MPW) Up 11.00%
NexPoint Residential Trust, Inc. (NYSE: NXRT) Up 8.77%
Braemar Hotels & Resorts (NYSE: BHR) Up 8.49%
National Storage Affiliates Trust (NYSE: NSA) Up 7.45%
Independence Realty Trust Inc (NYSE: IRT) Up 6.54%
Claros Mortgage Trust Inc (NYSE: CMTG) Up 6.12%
Camden Property Trust (NYSE: CPT) Up 5.84%
CBL & Associates Properties, Inc. (NYSE: CBL) Up 5.63%
Iron Mountain Inc (NYSE: IRM) Up 5.59%
Essex Property Trust Inc (NYSE: EPRT) Up 5.31%
Mid-America Apartment Communities Inc (NYSE: MAA) Up 5.24%
📉 Biggest Losers This Week: Office REITs
Orion Office REIT Inc (NYSE: ONL) Down 4.89%
Bridge Investment Group Holdings Inc (NYSE: BRDG) Down 2.55%
Service Properties Trust (Nasdaq: SVC) Down 2.24%
Outfront Media Inc (NYSE: OUT) Down 2.14%
Net Lease Office Properties (NYSE: NLOP) Down 2.05%
Clipper Realty Inc (NYSE: CLPR) Down 2.04%
Park Hotels & Resorts Inc (NYSE: PK) Down 1.86%
ONE BIG THING
OHI Lends A Helping Hand: Commits $10 Million To Lift Bankrupt Nursing Home Operator
What: On June 3, Omega Healthcare Investors Inc (NYSE: OHI) announced it would commit $10 million to fund 50% of Debtor-In-Possession (DIP) financing to LaVie Care Centers after LaVie announced it has filed for Chapter 11 Bankruptcy in the Northern District of Georgia.
Why: DIP financing is funds given to problematic companies in Chapter 11 bankruptcy that permits them to continue their operations successfully. In this case, LaVie can pay employee salaries and other expenses while they try to restructure and stabilize their business. They must prove to the bankruptcy court that they have a plan to turn the company around with the funds.
In return, Omega will receive a senior position on liens of LaVie’s assets and go to the head of the line, ahead of previous lenders. LaVie’s spending is carefully regulated and Omega must maintain adequate insurance on LaVie’s assets.
One key part of this DIP funding is LaVie will be required to pay a monthly rent of $3 million for the 30 properties it leases from Omega.
Beyond the advantages to Omega and LaVie, employees will keep their jobs and the residents of LaVie’s facilities will continue to receive quality care and not have to relocate.
Who: This is not the first instance in 2024 of a Healthcare REIT providing DIP funding Last month, Medical Properties Trust Inc (NYSE: MPW) approved $75 million in DIP funding for its largest operator, Steward Healthcare.
Takeaway: One has to wonder if companies such as LaVie and Steward which have not operated profitably up to now, will be able to right the ship. But there is built-in protection for the DIP lenders. The debtor is not permitted to pay off any debts incurred before Chapter 11 and new bank accounts must be secured that name the DIP lender on the account. If LaVie or Steward do not meet their obligations or follow the court’s mandates, the DIP designation can be terminated and the court will appoint a new trustee to run the business.
Like the poor turtle in the photo above, everyone needs a helping hand at times. Let’s hope these DIP programs prove to be a quid-pro-quo for all parties. Since the announcement, Omega shares have rallied about 1.5% over the past four days.
Renters: Staying Put Indefinitely?
What: Real estate brokerage firm Redfin recently reported increases in U.S. renters staying put in their units for longer. In 2022, 16.6% of all renters had been in their homes for 10 or more years, an increase from 13.9% in 2012. About 42% were in the same rental between one to four years, about a 2% increase over the past decade. Renters moving within one year declined from 32.2% to 25.2% over the decade.
Why: Everyone talks about the difficulty of buying a home with both prices and interest rates up so much. Down payments and closing costs are also an issue. Another frequently mentioned reason for younger generations choosing to rent is the ability to pick up and move more easily for another job or lifestyle.
However, another less-mentioned reason that renters stay put is the increased amenities in newer apartments and rental homes. Some complexes have swimming pools, workout rooms, walking or bicycle paths, meeting rooms and other perks. Many newly built rental homes are purposely equipped with smart appliances that weren’t available years ago. Tenants may feel like they’re living in a luxury hotel and enjoy the conveniences they might not be able to afford in a home of their own.
However, one of the reasons (along with demand) that rents have risen so much in recent years is the increase in amenities offered by rentals. Energy appliances, pool and spa maintenance all cost extra money and those costs are then passed down to renters.
One major disadvantage of long-term renting is the lack of equity accumulation that homeowners normally enjoy. Renters often argue that by saying homeowners have to pay taxes, insurance and maintenance costs. But in reality, tenants pay for those things too because the landlords factor those expenses into the rents.
Takeaway: Nobody knows how long the present high-interest, high-home-price environment will last. But in the meantime, several REITs, such as American Homes 4 Rent Class A (NYSE: AMH), Invitation Homes Inc (NYSE: INVH), Mid-America Apartment Communities Inc (NYSE: MAA) and AvalonBay Communities Inc (NYSE: AVB) will all benefit from long-term tenants digging in to stay.
ONE FOR THE ROAD
Analyst Stock Ratings: In Need Of A Makeover?
Who: Over the last two weeks, dozens of REITs from different sub-sectors have been “Maintained” by analysts from several brokerage firms. Barclays maintained positions on five REITs on May 30 and Mizuho maintained three. Wells Fargo maintained five on May 28, then another eight on May 30, and six more on May 31. Price targets were changed for all of them.
What: This seems odd. Do all these REITs warrant the same ratings as they did months ago? On May 31, when Wells Fargo analyst James Feldman maintained Essex Property Trust (NYSE: ESS) at Equal Weight, but raised the price target from $232 to $269, wasn’t that a way of saying Essex should now be bumped up to Overweight? In September, analyst Feldman rated Essex Equal-Weight when it traded near $215. Last week he maintained Essex at Equal-Weight as it was trading near $257.
Equal-Weight means the analyst sees the total return as similar to the average return that others in that sector will have over the next 12-18 months. But not many have matched Essex Property Trust’s performance since September.
Why: One of the problems with analyst ratings is the overlapping of meanings among different firms. Check out this chart of the various terms that brokerages use to say the same thing:
source: Investopedia
The Equal-Weight rating, which ironically does not appear on the chart above, can also be known as “market perform”, “Hold”, or “Neutral”, meaning that the stock is fairly valued and not likely to rise or fall to any significant degree.
Yet, Essex Property rose from $215 to $257, a 19.5% rise in 8 ½ months. That seems somewhat significant.
How: Another problem is the Equal-Weight rating gives an investor no clue whether the return will be positive or negative, nor how much an investor can expect if it does appreciate.
Takeaway: Maybe it’s time to have one set of standards for all analysts. What if all firms only rated stocks Buy, Sell, or Hold? That’s pretty clear and easy for investors to understand. Price targets are useful, however many analysts wait until the price is well above or below the target price before making any changes.
If a stock like Essex Property Trust reaches the analyst’s target price, a new price target should be announced within a reasonable time frame so investors know what to expect. Otherwise, investors are tempted to sell once the stock reaches the analyst’s price target, thinking it may not go any higher.
It seems all too easy to maintain a stock position again and again. A repetitious status quo is not acceptable. Investors need more transparency to make appropriately informed decisions on buying and selling.
PRESENTED BY DLP CAPITAL
Unlock greater financial opportunities and security with real estate investments that can help you achieve consistent double-digit returns.
DLP Housing Fund: 10-12% targeted annual net return, 6% preferred return paid monthly.
DLP Building Communities Fund: 11-13% targeted annual net return. 8% preferred return paid quarterly.
There’s more, including the DLP Lending Fund and the DLP Preferred Credit Fund.
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