Happy Friday! This week, markets looked forward to FED Chairman Jerome Powell’s remarks from the Jackson Hole Economic Symposium on August 23. Stocks were relatively strong on little news and about two-thirds of REITs showed gains. The Vanguard Real Estate Index Fund ETF (NYSEARCA: VNQ) traded about 1.30% higher.

In this issue, a slew of analyst price target hikes bolster REITs, Kimco gets conflicting ratings and new real estate rules may create more problems than they solve. REIT on!

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REIT ROUNDUP:

CTO Realty Growth Inc (NYSE: CTO) August 21, announced it closed on the acquisition of a portfolio of three open-air shopping centers in Charlotte, NC, Orlando, FL and Tampa, FL for $137.50 million.

Terreno Realty Corp (NYSE: TRNO) August 16, announced it has executed a lease for 69,000 square feet with an ocean freight provider in San Leandro, CA, to begin September 30, 2024 and expire in January 2030.

Upgrades:

Kimco Realty Corp (NYSE: KIM) August 16, Raymond James analyst RJ Milligan upgraded Kimco Realty from Market Perform to Strong Buy and announced a $25 price target. (See story on “One For The Road”)

Kite Realty Group Trust (NYSE: KRG) August 16, Raymond James analyst RJ Milligan upgraded Kimco Realty from Market Perform to Outperform and announced a $28 price target.

AFC Gamma Inc (Nasdaq: AFCG) August 16, Compass Point analyst Merrill Ross upgraded AFC Gamma from Sell to Neutral and lowered the price target from $10 to $9.

Vornado Realty Trust (NYSE: VNO) August 20, Evercore ISI Group analyst Steve Sakwa upgraded Vornado Realty from Underperform to Outperform and raised the price target from $32 to $38.

…and Downgrades:

Kimco Realty Corp: August 19, Mizuho analyst Vikram Malhorta downgraded Kimco Realty from Outperform to Neutral and raised the price target from $20 to $23.

Cousins Properties Inc (NYSE: CUZ) Evercore ISI Group analyst Steve Sakwa downgraded Cousins Properties from Outperform to In-Line and maintained the price target at $29.

Insider Transactions:

CBL & Associates Properties, Inc. (NYSE: CBL) August 19, Michael I. Lebovitz, President, sold 42,627 shares of company stock over two days, with a value of $1,104,034.

WP Carey Inc (NYSE: WPC) August 16, Director Mark A. Alexander purchased 2,000 shares of company stock at an average price of $57.03 for a total of $114,059.

Second-Quarter 2024 Earnings News:

Generation Income Properties Inc (Nasdaq: GIPR) August 16, 2nd quarter FFO of $0.03 per share beat the consensus estimate of $0.02. Revenue of $2.259 million beat the consensus estimate of $2.250 million and was a 69.98% increase from Q2 2023 revenue of $1.329 million.

WINNERS & LOSERS

📈 Biggest Winners This Week:

• Hudson Pacific Properties Inc (NYSE: HPP) Up 8.32%

• Vornado Realty Trust (NYSE: VNO) Up 7.76%

• American Healthcare REIT Inc (NYSE: AHR) Up 6.15%

• Uniti Group Inc (Nasdaq: UNIT) Up 5.62%

• Strawberry Fields Reit Inc (NYSEAMERICAN: STRW) Up 5.53%

• Host Hotels & Resorts Inc (Nasdaq: HST) Up 5.30%

• One Liberty Properties, Inc. (NYSE: OLP) Up 5.24%

• Park Hotels & Resorts Inc (NYSE: PK) Up 5.10%

• Clipper Realty Inc (NYSE CLPR) Up 5.08%

📉 Biggest Losers This Week:

• Medical Properties Trust Inc (NYSE: MPW) Down 6.90%

• Arbor Realty Trust Inc (NYSE: ABR) Down 5.13%

• Seritage Growth Properties Class A (NYSE:SRG) Down 4.91%

• Highwoods Properties Inc (NYSE: HIW) Down 2.85%

• Gladstone Land Corp (Nasdaq: LAND) Down 2.05%

ONE BIG THING

Price Target Upgrades Bolster REITs

What: In the week from August 16 and August 22, Wall Street analysts bestowed 27 price target increases to REITs as interest rate cut fever hit Wall Street.

By contrast, only four REITs received price cuts as of Wednesday morning.

X REITs were also upgraded, and as noted in the “One For The Road” article below, Kimco Realty Corp (NYSE: KIM) received a price target hike from $20 to $23 from an analyst at Mizuho while downgrading the stock. Multiple analysts are looking for REITs to climb higher over the next 12 months.

Who: Several other REITs also received price target increases from more than one analyst. Regency Centers Corp (Nasdaq: REG) had its price target hiked by Haendel St. Juste at Mizuho from $67 to $73, by Raymond James analyst RJ Milligan from $67 to $75 and by Truist Securities analyst Ki Bin Kim from $70 to $78.

Vornado Realty Trust (NYSE: VNO) received two price target increases, one on Friday from analyst Steve Sakwa of Evercore ISI Group ($31 to $32) when he maintained Vornado at Underperform and another one on Tuesday from the same Steve Sakwa when he decided to upgrade Vornado to Outperform and hike the price target from $32 to $38.

Americold Realty Trust Inc (NYSE: COLD), a REIT that provides cold storage, received two warm price hikes this week On Friday, Truist Securities analyst Ki Bin Kim raised Americold’s price target from $31 to $33 and on Monday, Scotiabank analyst Greg McGinniss raised his price target from $30 to $31.

Federal Realty Investment Trust (NYSE: FRT) On Friday, Raymond James analyst RJ Milligan generously hiked Federal Realty Investment Trust from $108 to $120 and on Monday, Mizuho analyst Haendel St. Juste raised the price target from $104 to $116.

Why: It’s not uncommon for Wall Street analysts to “pile on” after a stock has been upgraded or had its price target lifted by another analyst. Often it seems as if the analysts try to one-up each other with price targets. But beyond that, Wall Street is eagerly anticipating the FED will begin to cut rates in September. Analysts are sharpening their pencils to estimate how much of an effect rate cuts could have on REIT prices.

Takeaway: For REIT investors, the dark and gloomy clouds of 2022-2024 have given way to sunny skies over the end of 2024 and into 2025. Well, just one caveat- now the FED must do its part.

RULE CHANGE

New Real Estate Commission Rules Begin This Week: Does Anybody Win?

When: On August 17, important new rules regarding real estate commissions became effective, brought about by the March lawsuit settlement between a group of Plaintiffs versus the National Association Of Realtors (NAR) et. al.

What: Several class action lawsuits alleged that NAR’s compensation rules violated antitrust laws because they reduced competition and artificially inflated home prices. NAR decided to settle the lawsuit as the best possible outcome, rather than appealing the initial ruling which the plaintiffs won. As a result, the plaintiffs were awarded $418 million in damages, to be paid by NAR over four years.

How: The plaintiffs’ victory also changes the way that real estate transactions will be conducted going forward:

• The “Participation Rule” that required the seller’s agent to offer compensation to a buyer’s agent will be abolished.

• Agents will no longer be required to subscribe to Multiple Listing Services (MLS).

• Offers of agent compensation will now be prohibited on the MLS.

• All MLS participants must enter into a written buyer agreement with a buyer before showing any homes, either in person or virtually. The agreement clarifies the agent’s role and costs or compensation for their services.

• Most NAR members and industry stakeholders will be released from liability.

Possible effects of the new rules: The typical 6% commission split between listing and selling Broker will likely end or be reduced. Buyers will either have to pay a commission to their agent or negotiate a contract with sellers asking the seller to pay a commission to the buyer’s Broker.

If sellers agree to compensate the buyer’s Broker, they may be less motivated to reduce the list price. That means buyers already struggling with high interest rates, down payments and closing costs on high-priced homes could have to pay full listing price. Another possibility is the seller agrees to pay the buyer’s Broker a commission, but less than the 3% that was typically paid in the past. That will hurt Brokers and their agents.

More deals may fall apart during the negotiations and homes will take longer to be sold. That would ultimately hurt the sellers.

It’s also predicted that many Realtors who specialize in working with buyers will see a decline in income and may leave the field. Buyers will quickly realize that by working directly with the listing agent, they can avoid paying commission to a Broker or asking the seller to do so. However, that will set up a scenario in which the listing agents are bombarded with buyer inquiries and showing appointments.

Since only one person can win the bid, competition among buyers could heat up, again keeping prices higher. Another factor is that listing agents are typically loyal to the seller and not apt to help a buyer negotiate the best possible deal.

Settlement Eligibility: Anyone who sold a home after October 31, 2019, will be eligible for a payment if the property was listed in an MLS and a commission was paid. Sellers entitled to a payment will soon receive a notification from NAR. According to NAR, over 21 million homes were sold in that period.

To make a claim, one can also go to https://www.realestatecommissionlitigation.com/

Takeaway: Many will applaud this settlement and the reduction from high commissions that sellers once paid, but this decision may create more problems than it solves. Real estate negotiations will be more difficult as those involved tackle the sticky issue of who will pay the buyer’s Broker for their work. Buyers could have a harder time landing a home, Realtors may quit in droves and sellers’ homes could stay on the market longer.

And oh yes, it’s estimated that each claimant in the class action lawsuit could get as much as… $13 per home sold. Who says there’s no such thing as a free lunch?

ONE FOR THE ROAD

Kimco Realty Group: One Downgrade, One Upgrade This Week, Which One Is The Right Call?

Who: Kimco Realty Corp is a Jericho, NY-based retail REIT that owns and operates 567 open-air properties with 101 million square feet of leasable space and ground leases. Kimco Realty was founded in 1958, is a member of the S&P 500 and has traded on the New York Stock Exchange (NYSE) since 1991. Its second-quarter occupancy rate was 96.2%.

Kimco Realty’s lease terms run the gamut from less than five years to 30 years or longer. There are presently over 5000 different tenants, and only 10 tenants have annual base rent (ABR) exposure of over 1.0%. 82% of its Annual Base Rent (ABR) is from top metro markets on the East and West coasts.

What: On August 16, Raymond James analyst RJ Milligan upgraded Kimco Realty Group from Market Perform to Strong Buy and announced a $25 price target.

However, on August 19, Mizuho analyst Haendel St. Juste downgraded Kimco Realty Group from Outperform to Neutral. And yet, the analyst simultaneously raised the price target 15% from $20 to $23. Three other analysts have recently rated Kimco Overweight or Outperform, with price targets between $23 to $29 per share.

Recent Earnings: On August 1, Kimco Realty reported second-quarter operating results. FFO of $0.41 per share beat the consensus estimate by a penny and topped its Q2 2023 FFO of $0.40. Kimco’s revenue of $500.23 million was better than the consensus estimate of $497.79 million and easily beat its Q2 2023 revenue of $442.84 million.

Recent News: On July 17, Kimco Realty announced it upsized its Term Loan Facility from $200 million to $500 million across several banks including the original lender, TD Bank, N.A. The loan fixes a new blended term of 4.78%. Proceeds will be used for general corporate purposes and to reduce outstanding borrowings from Kimco’s unsecured revolving credit facility.

Performance: Kimco has traded between $15.68 and $23.87 since the beginning of 2022. Shares are 12.60% higher year-to-date.

Dividend: Kimco Realty pays a quarterly dividend of $0.24 per share and the $0.96 annualized dividend yields 4.30%. Its payout ratio is quite modest at 60% and the price/FFO rating of 13.89 is in line with the sector median of 13.65.

Takeaway: Analyst Milligan said, “We continue to be bullish on the REITs in general and view the shopping center REITs as one of the more attractive sub-sectors”. The analyst feels it trades at an NAV and multiple discount versus the broader REITs, while earnings growth is accelerating.

However, analyst St. Juste thinks the stock has reached its full value, and noted, “the slowing macro and consumer-related risks are hard to ignore.”

So who is right and who is wrong?

Milligan upgraded Kimco not one, but two levels, skipping over Outperform to rate it a Strong Buy. And although St. Juste downgraded the stock, he likes it enough to have raised the price target by 15% and admits it may have more room for growth. Three other analysts rate it either Overweight or Outperform.

The second quarter operating results were strong, the dividend yield is still over 4%, the payout ratio leaves room for further hikes and the P/FFO rating is in line with retail peers.

So what’s not to like? Score this one a win for the Raymond James team.

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