👋 Happy Friday, Everyone. Well, December began with a boom after the markets interpreted Fed Chairman Jerome Powell’s comments to mean that interest rates may have peaked and there won’t be another one in December. REITs continued their breathtaking rapid ascension, especially in the most severely beaten down sectors, such as office and hotel REITs. Triple net-lease REITs were also hot, especially after Realty Income’s upgrade on Wednesday (see “One For The Road” below). Right on and REIT on!

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REIT ROUND-UP:

ACRES Commercial Realty Corp (NYSE: ACR) November 30, announced its board has authorized a repurchase program for $4.1 million of common company stock and an additional $10 million of company and preferred shares.

Tanger Inc (NYSE: SKT) November 30, announced it has acquired Bridge Street Town Centre in Huntsville, AL for $193.50 million.

DigitalBridge Group Inc (NYSE: DBRG) December 1, announced Thomas Mayrhofer will become CFO and Treasurer, effective by the second quarter, 2024.

National Storage Affiliates Trust (NYSE: NSA) December 1, announced the board has approved a buyback program of up to $275 million.

Digital Realty Trust Inc (NYSE: DLR) December 5, announced a new strategic partnership with Fortinet (Nasdaq: FTNT) to increase cloud-delivered security and connectivity to Fortinet’s customers.

Western Asset Mortgage Capital Corp (NYSE: WMC) December 5, announced its stockholders have voted to approve the proposed merger with AG Mortgage Investment Trust, Inc. (NYSE: MITT).

Easterly Government Properties Inc (NYSE: DEA) December 7, announced CEO William C. Trimble, III will retire from his position as of December 31. On December 6, the board appointed Darrell W. Crate, presently Chairman of the Board, to serve as CEO, effective January 1, 2024. Allison E. Marino will become CFO and CAO and William H. Binnie will become Chairman of the Board.

Crown Castle Inc (NYSE: CCI) December 7, Elliott Investment Management has sent yet another letter to the Board, saying it has plans to nominate a new board if the present board is unwilling to make necessary leadership changes.

Dividend News:

Park Hotels & Resorts Inc (NYSE: PK) December 1, Declared a regular quarterly dividend of $0.15 and a “top off” dividend of $0.78 and a previously announced $0.77 special cash dividend to be paid on January 16, 2024 to shareholders of record on December 29. The ex-dividend is December 28.

📈 Biggest Winners This Week: Once again, the office REITs

• Hudson Pacific Properties Inc (NYSE: ) Up 28.11%

• Vornado Realty Trust (NYSE: VNO) Up 17.50%

• Net Lease Office Properties (NYSE: NLOP)  Up 16.76%

• Kilroy Realty Corp (NYSE: KRC) Up 15.13%

• Douglas Emmett Inc (NYSE: DEI) Up 14.81%

• SL Green Realty Corp (NYSE: SLG) Up 14.63%

• Macerich Co (NYSE: MAC) Up 13.43%

• Boston Properties , Inc. (NYSE BXP) Up 13.42%

📉 Biggest Losers This Week: Healthcare REITs

• American Homes 4 Rent Class A (NYSE: AMH) Down 4.80%

• DigitalBridge Group Inc: Down 4.06%

• Omega Healthcare Investors Inc (NYSE: OHI) Down 3.97%

• Digital Realty Trust Inc : Down 3.25%

• Creative Media & Community Trust Corp (Nasdaq: CMCT) Down 3.12%

• Ellington Financial Inc (NYSE: EFC) Down 2.46%

• Sabra Health Care REIT Inc (Nasdaq: SBRA) Down 2.40%

  Prices as of December 7, 12:00 PM

UPGRADES:

Crown Castle Inc: December 5, Wells Fargo analyst Eric Luebchow upgraded Crown Castle from Underweight to Equal-Weight and raised the price target from $90 to $115.

First Industrial Realty Trust Inc (NYSE: FR) December 5, Mizuho analyst Haendel St. Juste upgraded First Industrial from Neutral to Buy and announced a $55 price target.

Realty Income Corp (NYSE: O) December 6, Wolfe Research analyst Andrew Rosivach upgraded Realty Income from Peer Perform to Outperform and announced a $66 price target (see article below). 

…And Downgrades

Prologis Inc (NYSE: PLD) December 5, Mizuho analyst Vikram Malhotra downgraded Prologis from Buy to Neutral and announced a $125 price target.

EastGroup Properties Inc (NYSE: EGP) December 5, Mizuho analyst Vikram Malhotra downgraded EastGroup Properties from Buy to Neutral and announced a $185 price target.

ONE BIG THING

Sold! REITs Selling Assets to Pay Down Debt

WHAT: This week, several REITs announced they were selling assets to either invest in other types of properties and/or to avoid refinancing assets at higher interest rates than present levels.

WHO: One Liberty Properties, Inc. (NYSE: OLP) December 1, announced its completion of the sale of two restaurant properties and a portion of a retail property for $8.7 million, with a gain of $2.7 million. Three other restaurants and two retail properties will also be sold for $23.0 million before year’s end.

CTO Realty Growth Inc (NYSE: CTO) December 1, announced the closing of a sale of three single-tenant outparcels in Chandler, AZ for a combined sales price of $9.2 million, with a gain of approximately $3.0 million.

Hudson Pacific Properties Inc: December 1, announced it has sold a 5.3-acre land parcel in North San Jose for $43.5 million and 100% of two tranches and 49% of a third tranche of debt in its Hollywood Media Portfolio for gross proceeds of $145.8 million.

SL Green Realty Corp (NYSE: SLG) December 1, announced it has contracted to sell a fee ownership interest in its property at 625 Madison Avenue for $632.50 million.

WHY: From One Liberty Properties’ news release: “With these timely and profitable sales of non-industrial assets, we continue to make strides in repositioning the portfolio as industrial-focused. We continue to believe this successful transformation will produce further stability and cashflow over the long-term as we focus on unlocking additional stockholder value.”

Translation: We don’t want these retail and restaurant properties anymore and we’re going to refinance our debt and pay down what we can. One Liberty paid down $15.0 million of its credit facility debt. Hudson Properties used the net proceeds from its sales to also pay down an unsecured revolving credit facility

It was much the same with CTO Realty Growth. John P. Albright, President/CEO noted: “We’re pleased with the attractive pricing we received on these property sales, as these dispositions continue our efforts to sell smaller format properties to paydown debt as we search for higher growth, larger format investment opportunities.”

Takeaway: One of the main reasons for the decline in REIT prices throughout much of 2023 was the fear that REITs would have to refinance debt at much higher levels as the loan periods expired. Selling the assets at a profit takes away that problem and adds to free cash flow. However, it also takes away the future rental income that was formerly derived from the asset. So, REITs will have to find new sources of income-producing properties with capitalization rates equal to or better than those that they sold. But meanwhile, their share prices got a nice boost from the dispositions.

HOUSING NEWS BRIEF

Homebuyers’ New Opportunity: Foreclosures?

What: Prospective Homebuyers lamenting the real estate market’s high prices or having given up on finding an inexpensive home do have a viable alternative.

How: The foreclosure market is picking up again, according to attomdata.com. In September, there were 37,679 U.S. properties with foreclosure filings, an 11% increase from August and 18% above September 2022. In the third quarter of 2023, there were 100,546 properties with filings nationwide.

States seeing large year-over-year increases included North Carolina, Louisiana, Pennsylvania, Alabama and Nevada. Other states with rising foreclosure counts were Illinois, South Carolina, New Jersey, California, Florida, Tennessee, and Delaware. Even some larger cities like New York, Chicago, Houston, Los Angeles, and Philadelphia are seeing increases.

Where: Foreclosure properties can be found on websites such as Auction.com, Xome.com and Hubzu.com, and Realtors can also point buyers toward foreclosures as they hit the market.

Misconceptions: There are many misconceptions about foreclosures. One common one is they’re all run-down dilapidated shacks with no roof, heating or plumbing. Yes, there are foreclosures like that, but the majority are in decent living conditions. True, you may need to strip wallpaper, apply paint, and have some minor repairs or cosmetics done, but just because someone couldn’t pay their mortgage doesn’t mean the home has to be in shambles.

Another misconception is that cash investors grab up all the homes. While Auction is exclusively for cash buyers, Hubzu and Xome have different standards and many homes on those sites can be bid and won by those bringing mortgages. In fact, the homes that say “cash bids only” are usually those too run-down to qualify for financing. With homes in better condition, the highest bid wins, regardless of whether the buyer uses cash or a mortgage.

And don’t think you need $400,000 or $500,000 to buy a foreclosure. Many homes on these sites are below $200,000 and some are even below $100,000.

Takeaway: If 2024 brings about a recession, as many are predicting, the supply of foreclosures will increase and both interest rates and prices could come down. The end result- opportunities for prospective homebuyers may improve substantially in the new year.

ONE FOR THE ROAD

Realty Income Upgraded: It’s About Time!

Briefly: On December 6, Wolfe Research analyst Andrew Rosivach upgraded Realty Income Corp from Peer Perform to Outperform and announced a $66 price target. It was the first analyst upgrade for Realty Income since April 2023 when Scotiabank Upgraded it from Sector Perform to Outperform and announced a $69 price target.

What: By contrast, as recently as October 10, B of A Securities analyst Joshua Dennerlein downgraded Realty Income from Buy to Neutral and announced a $52 price target. Three weeks later, the analyst looked very smart as Realty Income sold off on the announcement it was buying Spirit Realty Capital Inc (NYSE: SRC) in an all stock transaction worth $9.3 billion. Shares hit bottom on October 30 at $44.57, but Realty Income has rebounded since then and closed the day before the new upgrade at $54.92.

Who: Realty Income is one of the foremost REITs in America today and has been so for many years. It’s paid 640 consecutive monthly dividends, with 122 increases over a 54 year span, first as a private REIT and then after going public in 1994. The total return since January 1, 1995 is 1,189%. A $10,000 investment in O back then would be worth $129,000 today and a whopping $387,474 if you reinvested the dividends.

Realty Income’s critics say it’s become to big to grow much, yet in August, Realty Income purchased a stake in The Bellagio Las Vegas and in October made a bid to acquire Spirit Realty. Then a few weeks ago, Realty Income announced it was partnering with Digital Realty Trust Inc to develop a data center in Virginia, in which Realty Income will own 80% of the equity. Does that sound like a company that is resting on its laurels?

Takeaway: The analyst’s call was a good one, but was somewhat late to the party after Realty Income had already risen 23% off the bottom. Analysts with courage should have been upgrading Realty Income at any price below $50 and literally pounding the table for investors to buy it at $45 with a 6.8% dividend yield.  

A MESSAGE FROM OUR PARTNERS

The #1 Lithium Play to Watch Before 2023 Closes

This little-known company is offering exciting exposure to the lithium market and what could be the next major lithium discovery in the world. As electric vehicle sales and energy storage needs expand all over the world, so will the demand for lithium. President Joe Biden last year announced an official goal for half of all new cars sold in the United States to be electric or other zero-emissions technology by 2030. This is only 7 years from now. It’s no wonder that automakers are scrambling to add EVs to their lineup. Click here to learn more.