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- 🤝 Realty Income Lands Another Monster Deal
🤝 Realty Income Lands Another Monster Deal
Plus, Brightspire: The Start Of A Brighter Future?
Ethan Roberts
November 03, 2023
👋 Happy Friday, Everyone. Whew! What a week. REIT mergers, Fed meeting, key economic news, and a slew of REIT earnings reports made this a most interesting five trading days.
Wednesday was the key day as the FED paused on rate hikes again, although Jerome Powell didn’t rule out another hike in December, saying it would not be difficult to raise again after keeping rates steady two months in a row. Also significant was the Treasury Department’s announcement that it will accelerate the size of its auctions to deal with finance costs rising on its enormous debt load.
So Wednesday and Thursday it was off to the races for stocks. REITs had their best week in months, with over 80% of them profitable. Triple-net REITs like Realty Income Corp (NYSE: O), Agree Realty Corporation (NYSE: ADC) NNN REIT Inc (NYSE: NNN) and Four Corners Property Trust (NYSE: FCPT) came roaring back from deeply oversold conditions.
Think you can stand a little good news for a change? Read on!
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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 of over $35 million, Cityfunds is your gateway to the expansive $20T home equity market. Dive into the future of real estate investment today!
REIT ROUND-UP
AFC Gamma Inc (NYSE: AFCG) October 30, announced the appointment of Daniel Neville as its new CEO, succeeding Leonard Tannenbaum as of November 13, 2023. AFC Gamma is a specialized REIT that finances cannabis companies.
Healthpeak Properties Inc (NYSE: PEAK) October 30, announced it is merging with Physicians Realty Trust (NYSE: DOC) in a $21 billion all stock deal in which each Physicians Realty trust common share will convert to 0.674 of newly issued Healthpeak common shares.
Realty Income Corp: October 30, announced it’s acquiring Spirit Realty Capital Inc (NYSE: SRC). For more on this, see “One Big Thing” below.
SITE Centers Corp (NYSE: SITC) October 30, announced it will spin-off of its Convenience Portfolio (shop units in convenient areas of high income) into a separate publicly-traded REIT, which will be named Curbline Properties Corp. (expected symbol: CURB).
Iron Mountain Inc (NYSE: IRM) November 2, announced it will acquire Regency Technologies, a provider of IT Asset Disposition (ITAD) services, for an initial purchase price of $200 million, with $125 million to be paid at closing and the remainder due in 2025.
Dividend Increases:
Community Healthcare Trust Inc (NYSE: CHCT) October 27, announced its raising its quarterly dividend from $0.4525 to $0.455 per share, payable November 24 to shareholders of record on November 9, with an ex-dividend date of November 8. The annualized $1.82 dividend per share presently yields 6.50%.
LXP Industrial Trust (NYSE: LXP) October 31, announced it’s raising its quarterly dividend from $0.125 to $0.13.
NexPoint Residential Trust Inc (NYSE: NXRT) October 31, announced its raising its quarterly dividend by 10.1%, from $0.42 to $0.4624 per share, payable December 29 to shareholders of record on December 15, with an ex-dividend date of December 14. The annual dividend of $1.8497 now yields 6.84%.
Third Quarter Earnings:
📈 Biggest Winners This Week: Mortgage and Retail REITs
Invesco Mortgage Capital Inc (NYSE: IVR) Up 14.92%
AGNC Investment Corp (Nasdaq: AGNC) Up 14.31%
Spirit Realty Capital Inc (NYSE: SRC) Up 14.26%
NexPoint Real Estate Finance Inc (NYSE: NREF) up 14.10%
Urban Edge Properties (NYSE: UE) Up 13.55%
ARMOUR Residential REIT, Inc. (NYSE: ARR) Up 13.30%
Office Properties Income Trust (Nasdaq: OPI) Up 13.06%
Annaly Capital Management, Inc. (NYSE: NLY) Up 12.94%
City Office REIT Inc (NYSE: CIO) Up 12.01%
📉 Biggest Losers This Week: Residential and Healthcare REITs
TPG RE Finance Trust Inc (NYSE: TRTX) Down 7.49%
Pebblebrook Hotel Trust (NYSE: PEB) Down 5.62%
NewLake Capital Partners Inc (OTCMKETS: NLCP) Down 4.05%
Equity Residential (NYSE: EQR) Down 3.31%
UDR Inc (NYSE: UDR) Down 3.01%
Braemar Hotels & Resorts (NYSE: BHR) Down 2.93%
Peakstone Realty Trust (NYSE: PKST) Down 2.54%
Camden Property Trust (NYSE: CPT) Down 2.53%
Prices as of November 2, 12:00 PM
UPGRADES AND DOWNGRADES:
EastGroup Properties Inc (NYSE: EGP) October 27, Raymond James analyst William Crow upgraded EastGroup Properties from Market Perform to Outperform and announced a $180 price target.
Invitation Homes Inc (NYSE: INVH) October 30, Oppenheimer analyst Tyler Batory upgraded Invitation Homes from Perform to Outperform and announced a $35 price target.
AvalonBay Communities Inc (NYSE: AVB) October 31, Piper Sandler analyst Alexander Goldfarb upgraded AvalonBay Communities from Neutral to Overweight and lowered the price target from $197 to $194.
CubeSmart (NYSE: CUBE) October 30, Bank of America Securities analyst Jeffrey Spector downgraded CubeSmart from Buy to Neutral and lowered the price target from $51 to $38.
Extra Space Storage Inc (NYSE: EXR) October 30, Bank of America Securities analyst Jeffrey Spector downgraded Extra Space Storage from Buy to Neutral and lowered the price target from $155 to $119.
Mid-America Apartment Communities Inc (NYSE: MAA) October 31, Piper Sandler analyst Alexander Goldfarb downgraded Mid-America Apartment Communities from Overweight to Neutral and lowered the price target from $182 to $130. Same day, Bank of America Securities analyst Joshua Dennerlein downgraded Mid-America from Neutral to Underperform and lowered the price target from $136 to $112.
UDR Inc (NYSE: MAA) October 31, Piper Sandler analyst Alexander Goldfarb downgraded UDR from Neutral to Underweight and lowered the price target from $46 to $30. Same day, Bank of America Securities analyst Joshua Dennerlein downgraded UDR from Buy to Neutral and lowered the price target from $42 to $33.
Camden Property Trust (NYSE: CPT) October 31, Piper Sandler analyst Alexander Goldfarb downgraded Camden Property Trust from Neutral to Underweight and lowered the price target from $126 to $80. Same day, Bank of America Securities analyst Joshua Dennerlein downgraded Camden Property Trust from Neutral to Underperform and lowered the price target from $101 to $84.
Spirit Realty Capital Inc: October 31, JMP Securities analyst Mitch Germain downgraded Spirit Realty Capital from Market Outperform to Market Perform.
Community Healthcare Trust Inc: November 2, Evercore ISI Group analyst Steve Sakwa downgraded Community Healthcare from Outperform to In-Line and lowered the price target from $36 to $32.
ONE BIG THING
Realty Income Lands Another Monster Deal
Briefly: On October 30, Realty Income Corp announced it will acquire Spirit Realty Capital in a $9.3 billion all-stock deal.
What Happened: Under the terms of the deal, Spirit Realty shareholders receive 0.762 newly issued shares of Realty Income common stock for each share of Spirit Realty owned. Spirit Realty, which closed on October 27 at $32.35, will jump more than 15% to about $37.34.
Fall Out: Realty Income’s total portfolio of 13,100 just increased by another 2,064 and the deal is expected to add another 2.5% to its annualized adjusted FFO (AFFO) per share. In addition, annualized contractual rent will increase from $3.8 billion to $4.5 billion.
As of June 30, Spirit Realty’s portfolio contained 345 tenants in 37 different industries across 49 states, with a 99.8% occupancy rate. 39.8% of the tenants are service retail and 25.7% are industrial. Spirit’s top tenants include Life Time Fitness, BJ’s Wholesale Club, At Home, Dollar Tree, Circle K and Home Depot.
Realty Income’s CEO, Sumit Roy, noted, “Spirit’s assets are highly complementary to our existing portfolio, extending our investments in industries that have proven to generate durable cash flows over several economic cycles.”
Two months ago, Realty Income landed another big deal when it invested $950 million in a deal with Blackstone, to acquire a stake in The Bellagio Las Vegas. One of the concerns raised about Realty Income by Wall Street pundits this year is that it’s become to large to continue its growth. But it looks like Realty Income has proven its critics wrong. And it doesn’t hurt that Spirit Realty just beat the estimates on FFO and Revenue in its third quarter operating results.
Pending approval by the Spirit Realty shareholders, the acquisition is expected to be completed in the first quarter of 2024, and will make Realty Income the fourth largest REIT in the S&P 500 by enterprise value.
Coming on a Halloween week, this was truly a monster deal!
HOUSING NEWS BRIEF
When The Office Becomes Your Home
What: On October 27, the Biden Administration announced a new $35 billion initiative to convert underutilized commercial and office space near transportation hubs in large cities into residential housing. Utilizing more than 20 pre-existing federal agency programs, the plan is to provide new financing and technical assistance to developers, as well as promoting the sale of surplus government property that could be redeveloped for housing. The incentives include low-interest loans, grants and tax benefits to developers.
Why: According to Deputy Secretary of Housing, Adrianne Todman, “With a shortage of millions of homes nationwide, we need to utilize every resource at our disposal to increase housing supply.”
Ostensibly, it’s a terrific idea, matching the needs of commercial property owners who are dealing with 15%-18% office vacancy levels, with demand for lower-priced housing. It’s been estimated that over 170,000 residential units nationwide could be created out of presently empty office space, and more quickly than it takes to build new apartments.
Not So Fast: But there are hurdles to clear. First, converting modern offices into apartments would require extensive new plumbing, heating and air conditioning, and re-wiring, and none of that is cheap. Another obstacle is that some offices may lack exterior windows, while others have fixed (non-opening) windows that would need modification.
Zoning rules in large cities like New York, along with the expiration of that state’s tax exemption for builders who provide affordable housing, puts a limit on the number of potential conversions. Moody’s Analytics says office conversions to residences would only put a small dent in the additional 200,000 to 600,000 housing units New York needed by 2030 to achieve a well-functioning market.
So far, the administration has only stated the developer loans would have “below market” interest rates, with no specific numbers cited. Rates below 5% would likely be necessary to reduce development costs. There’s been no mention of low-interest-rate loans to purchasers of these residential conversions.
Finally, there is a question of whether these residences would increase or decrease in value over time. Condo conversions from hotels and motels do not generally appreciate much and it’s more difficult to procure financing for them. Nor does everyone want to live on the highest floors of a skyscraper.
Final Remarks: But it seems that plans are in the works. We’re all familiar with the concepts of working from home and the home office. If the Biden administration’s plan succeeds, now you can live in the office!
ONE FOR THE ROAD
Brightspire: The Start Of A Brighter Future?
What? On October 30, Brightspire Capital Inc (NYSE: BRSP) reported Q3 operating results. EPS of $0.28 trounced the consensus estimate of $0.21 by 33% and was 12% above EPS of $0.21 in Q3 2022. Revenue of $59.09 million beat the estimate of $29.36 by 101.24% and was 6.98% better than revenue of $55.23 million in Q3 2022.
Details: Brightspire Capital is an internally managed New York based Mortgage REIT (mREIT) that supplies floating rate capital to multifamily, office, hotel, retail and net-lease real estate investments, most often consisting of senior mortgage loans. Brightspire has about $4.5 billion in assets under management.
Brightspire’s quarter was a vast improvement, considering the last four quarters have produced EPS returns of -0.06, 0.03, 0.03 and -0.16. Because Brightspire has floating interest rate loans, higher rates have definitely helped its earnings. And since high inflation often brings on recession, Brightspire has been prudently increasing its reserves in recent quarters in case of future loan defaults.
In 2019, Brightspire cut its dividend from $0.145 to $0.10. But since then the company has raised its dividend five times. With a recent closing price of $5.66, the $0.20 quarterly dividend per share with an $0.80 annual dividend was yielding a hefty 14.13%.
Final Remarks: Brightspire looked like a classic yield trap this year with dividend payouts well above its EPS. But things may be turning around with its $0.28 EPS quarter. A couple more quarters like that and this REIT will definitely command a lot more respect than its present $5 price tag.
PRESENTED BY NADA
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! 🏙️💼📈