Happy Friday! Stocks bounced back from the pounding over the past few weeks and more than 90% of all REITs had gains for the week through Wednesday. REIT earnings were better than estimates (see chart and “One Big Thing” for more information), and several had forward guidance that met or exceeded expectations. Unfortunately, a weaker-than-expected GDP report of 1.6% and a 3.4% consumer price increase on Thursday took some of the rally out of the REITs, but far less than the general market.

In This Issue: More on REIT earnings, mortgage rates spike up to rates not seen since last November, and a bounce back for Agree Realty.

REIT ON FOR MORE!

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.

REIT ROUNDUP:

Ashford Hospitality Trust, Inc. (NYSE: AHT) April 18, announced Rob Hays, President and CEO, will be stepping down effective June 30, 2024. Ashford’s Senior VP of Corporate Finance, Stephen Zsigray, has already been named as his successor. Hays has been with Ashford for 20 years.

U-Haul Holding Co (NYSE: UHAL) April 23, announced it’s now operating the 640 self-storage unit on 5.93 acres, previously owned by Life Storage that U-Haul purchased on April 3 in Webster, New York. One day earlier, U-Haul announced plans for a full-service retail, moving and self-storage center on 30 acres it previously purchased in Lake Ozark, MO. The facility is expected to open by spring 2026 and will feature 800 indoor units, 180 drive-up storage units and 170 covered parking spaces for RV storage, moving truck and trailer rentals, and mobile storage containers.

WINNERS & LOSERS

📈 Biggest Winners This Week:

• Peakstone Realty Trust (NYSE: PKST) Up 14.52%

• Clipper Realty Inc (NYSE: CLPR) Up 9.21%

• Creative Media & Community Trust Corp (Nasdaq: CMCT) Up 7.53%

• Highwoods Properties Inc (NYSE: HIW) Up 6.72%

• Sotherly Hotels Inc (Nasdaq: SOHO) Up 6.67%

• NewLake Capital Partners (OTCMKTS) Up 6.31%

• Equity Residential (NYSE: EQR) Up 6.07%

📉 Biggest Losers This Week:  

• Medical Properties Trust Inc (NYSE: MPW) Down 8.82%

• Claros Mortgage Trust (NYSE: CMTG) Down 3.82%

• Hudson Pacific Properties Inc (NYSE: HPP) Down 3.44%

• Equity LifeStyle Properties Inc (NYSE: ELS) Down 2.45%

• DigitalBridge Group Inc (NYSE: DBRG) Down 2.37% 

Prices as of April 25th at noon

Upgrades:

Equity Residential (NYSE: EQR ) April 22, BMO Capital analyst John Kim upgraded Equity Residential from Market Perform to Outperform and raised the price target from $68 to $70.

Federal Realty Investment Trust (NYSE: FRT) April 22, Deutsche Bank analyst Omotayo Okusanya upgraded Federal Realty Investment Trust from Hold to Buy and raised the price target from $109 to $110.

UDR Inc (NYSE: UDR) April 25, UBS analyst Michael Goldsmith upgraded UDR from Neutral to Buy and raised the price target from $38 to $44.

… and Downgrades:

Crown Castle Inc (NYSE: CCI) April 19, Argus Research analyst Marie Ferguson downgraded Crown Castle from Buy to Hold.

Prologis Inc (NYSE: PLD) April 22, BMO Capital analyst John Kim downgraded Prologis from Outperform to Market Perform and lowered the price target from $145 to $112.

First Industrial Realty Trust Inc (NYSE: FR) April 25, Wedbush analyst Richard Anderson downgraded First Industrial Realty from Outperform to Neutral and lowered the price target from $59 to $49.

Notable Earnings:

The following table shows the earnings and revenue of REITs that reported first-quarter operating results this week.

ONE BIG THING

REIT Earnings Stomping On Analysts’ Estimates

What: First quarter REIT earnings are beating analyst estimates, despite all the gloom and doom talk about higher for longer interest rates.

Who: Agree Realty Corporation (NYSE: ADC), Pebblebrook Hotel Trust, Alexandria Real Estate Equities Inc (NYSE: ARE), Equity LifeStyle Properties Inc (NYSE: ELS) and Alpine Income Property Trust Inc (NYSE: PINE) and others have all had strong first-quarter earnings reports thus far.

How: REIT earnings and revenue are beating consensus estimates and topping company results from the year-ago quarter. And in some cases, forward guidance is topping analyst estimates as well.

Takeaway: The chatter for months has been about how real estate investment trusts (REITs) cannot perform well in a higher interest rate environment. They have to refinance existing debt at higher rates, occupancy levels could decline drastically, inflation will reduce consumer spending, etc. The illusionary three-rate cut rally, which pushed REITs higher over the last two months of 2023, fizzled in January and sent REIT prices tumbling over the next three months.

Wall Street analysts have slashed REIT target prices like crazy within the past few weeks, citing these and other concerns. Between April 15-24, 28 REITs had their price targets cut. Many price target cuts came after REITs had already declined by several points. For example, the analyst downgrade and rate cut noted above on Prologis came after the shares had already fallen from $135 to $103.

Investors who disregard the gloom and doom predictions and buy REIT shares at bargain prices could do very well over the long term. The higher dividend yields help buffer any losses in the meantime.

Mortgage Rates Back Over 7%, Highest Rate Since November.

What: Mortgage rates rose last week, following unexpected strength in retail sales and the Consumer Price Index (CPI). Jerome Powell’s reassertion that interest rates could be “higher for longer” was the icing on the cake.

As bond rates rose, so did the 30 and 15-year mortgage interest rates. As of April 25, Bankrate.com reports the national average 30-year-fixed mortgage APR is 7.35% and the 15-year fixed is 6.75%. Bankrate gets its numbers from a survey of the nation’s largest mortgage lenders. Mortgage News Daily, which also conducts surveys of lenders, reported the national average 30-year rate as high as 7.50%. With the rise in the 10-year treasury on Thursday, the 30-year loan rates could increase again over the next week.

These are the highest national rates since November and come during the time of year when home sales usually pick up. However, the National Association of Realtors (NAR) reported last week that homebuying had its largest monthly drop from February to March since 2022.

Why: Prices remain high as the market supply of existing homes continues to be low by historical standards. Home prices have even escalated in some parts of the country because of the low supply. Increases in gasoline prices over the past few weeks have not helped either, as prospective home buyers worry about inflation eroding their dollars.

Paradoxically, a strong job market, which usually leads to more home sales, has kept interest rates up, and therefore unaffordable for most young buyers. A recent Bankrate analysis found that potential homebuyers need to make a six-figure salary to afford a median-priced home of $402,343 in 22 states and Washington, D.C. By contrast, four years ago, only six states and Washington, D.C. mandated a six-figure salary to buy a home. In 2020, buying a typical home only required an annual income of $76,191.

Where: Presently, the most expensive states are Hawaii, California, Massachusetts and Washington State, all requiring salaries approaching $200,000 annually.

But what if you don’t have that kind of income? Look instead at homes in Ohio, Arkansas, Mississippi, Indiana, and Kentucky, where the required annual income would only be around $65,000.

Takeaway: With so many people working from home today, one’s ability to move to another state without changing jobs is easier than before 2020. While most people don’t want to leave family and friends for the promise of the American dream, if rates remain above 7%, rental prices remain high and home prices don’t decline significantly, they may have little choice.

ONE FOR THE ROAD

Investors “Agree”, Agree Realty Is Back

Who: Agree Realty Corporation (NYSE: ADC) is a Bloomfield Hills, MI based triple-net-lease REIT focused on retail properties. Its portfolio includes 2161 owned/operated properties, totaling 45 million square feet across 49 states. 69% of its tenants are investment grade, with well-known names such as Walmart Inc (NYSE: WMT), Best Buy Co Inc (NYSE: BBY) and Dollar General Corp (NYSE: DG).

What: On April 24, Agree Realty (pronounced “A gree”, not “agree”) reported first-quarter operating results. AFFO of $1.03 per share beat the consensus estimate of $1.01. Revenue of $149.453 million topped the consensus estimate of $146.462 million and was an 18.03% increase in revenue of $126.618 million from the first quarter of 2023.

In addition, Agree said it sees full-year 2024 AFFO at $4.10-$4.13 per share, above the analysts’ estimate of $4.07 per share.

Why: Agree Realty is especially popular with income investors because it pays a consistent monthly dividend. On April 8, the dividend was increased by 2.9%, from $0.247 to $0.25 per share. The new dividend will be paid on May 14 to shareholders of record as of the close on April 30. The ex-dividend date is April 29. The $3.00 annualized dividend presently yields 5.14%.

Dividend raises shortly before earnings announcements often signal to investors that the announcement will be positive, and this quarter was a good example of that.

Agree Realty has had a difficult year, with a total return of -8.20% before the first quarter earnings release. Revenue has grown over the past year, but FFO was somewhat stagnant.

But Wall Street liked what it heard and Agree shares rallied almost 1% on Wednesday, the sixth consecutive day that shares have been higher. Investors’ recent enthusiasm has been matched by Agree management, which purchases company shares whenever the share price drops. In the first quarter of 2024, company insiders bought 177,547 shares, while only 31,825 shares were sold.

We “agree” with the company insiders. Agree Realty is back.

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.