Happy Friday! Concerns over interest rates and weakness in Apple Inc (Nasdaq: AAPL) took the major indices down hard on Monday and Tuesday. REITs were weaker but not as hard hit as tech. On Wednesday, stocks opened strongly, but pulled back when Jerome Powell told legislators that the FED is still committed to the 2% inflation goal and is wary of cutting rates too soon. However, on Thursday, the market regained its pep and prices were up throughout the morning. REITs were trading higher as well.

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:

MFA Financial Inc (NYSE: MFA) February 29, announced a new $200 million stock repurchase program, in effect until the end of 2025.

Independence Realty Trust Inc (NYSE: IRT) March 1, announced the appointment of Craig Macnab, former CEO of NNN Inc (NYSE: NNN), to its board of directors.

Healthpeak Properties Inc (NYSE: DOC) March 1, announced it has closed its previously announced merger with Physicians Realty Trust (NYSE: DOC). The new merged company will continue to be called Healthpeak Properties Inc, but will now trade under the symbol DOC.

Digital Realty Trust Inc (NYSE: DLR), March 4, announced it has formed a join venture with Mitsubishi Corporation to support the development of two data centers in the Dallas, TX metro area that are 100% pre-leased to an unnamed S&P 100 investment grade customer on a long term basis. Digital Realty will have a 35% interest and will manage the development and day-to-day operations for a fee.

Easterly Government Properties Inc (NYSE: DEA) March 4, announced it has been awarded a 20-year non-cancelable lease on a 50,777 square foot Federal courthouse in Flagstaff, AZ.

Essential Properties Realty Trust Inc (NYSE: EPRT) March 4, entered into a 10 property Sale-Leaseback transaction with Red Robin Gourmet Burgers Inc (Nasdaq: RRGB)

Global Net Lease Inc (NYSE: GNL) March 4, announced that James L. Nelson, President and Co-CEO has resigned his positions, effective as of March 31. Edward M. Weil, Jr. will continue as the sole CEO going forward.

NexPoint Residential Trust Inc (NYSE: NXRT) March 5, announced the closing of the sale of “Old Farm”, a 734-unit property in Houston, TX. A portion of the Net proceeds from the sale of $49.4 million will go towards paying down NexPoint’s corporate credit facility to zero.

Caretrust REIT Inc (NYSE: CTRE) March 6, announced the acquisition of three skilled nursing facilities (SNF) with 210 skilled nursing beds and 24 assisted living units for approximately $55.6 million. Two of the facilities are in Houston, TX and one is in Columbia, MO.

U-Haul Holding Co (NYSE: UHAL) March 6, announced it will break ground on March 7, on a new three-story storage facility with 1295 self-storage rooms in Manheim, PA.

DIVIDEND NEWS

Whitestone REIT (NYSE: WSR) March 5, announced it’s increased its monthly dividend by 3% from $0.12 to $0.12375 per share. The dividend will be paid on April 11 for shareholders as of April 2.

Insider Purchases:

Agree Realty Corporation (NYSE: ADC) February 29, Richard Agree, Director and Executive Chairman of the Board, purchased a total of 16,000 shares of company stock at an average price of $55.50 for approximately $888,000.

NOTABLE EARNINGS

The following table shows several REITs that reported 4th quarter earnings this week, vs estimates and the year-ago quarter:

WINNERS & LOSERS

📈 Biggest Winners This Week: 

• Uniti Group Inc (NYSE: UNIT) Up 12.29%

• Outfront Media Inc (NYSE: OUT) Up 10.65%

• Peakstone Realty Trust (NYSE: PKST) Up 10.31%

• Medical Properties Trust Inc (NYSE: MPW) Up 926%

• Independence Realty Trust Inc (NYSE: IRT) Up 8.81%

• Lamar Advertising Co (Nasdaq: LAMR) Up 8.16%

• One Liberty Properties, Inc. (NYSE: UMH) Up 7.21%

📉 Biggest Losers This Week:

• Diversified Healthcare Trust (Nasdaq: DHC) Down 14.94%

• Office Properties Income Trust (Nasdaq: OPI) Down 12.36%

• Braemar Hotels & Resorts (NYSE: BHR) Down 10.96%

• Bridge Investment Group Holdings Inc (NYSE: BRDG) Down 6.53%

• Farmland Partners Inc (NYSE: FPI) Down 5.85%

• Arbor Realty Trust Inc (NYSE: ABR) Down 4.93%

• Service Properties Trust (Nasdaq: SVC) Down 4.71%

• Kilroy Realty Corp (NYSE: KRC) Down 4.54%

Prices as of 3/7 12:00 Noon

Upgrades:

Medical Properties Trust Inc (NYSE: MPW) March 1, Exane BNP Paribas analyst Nate Crossett upgraded Medical Properties Trust from Neutral to Outperform and announced a $6 price target.

UDR Inc (NYSE: UDR) March 4, Wells Fargo analyst James Feldman upgraded UDR from Equal-Weight to Overweight and raised the price target from $34 to $39.

SBA Communications Corp (Nasdaq: SBAC) March 7, Bank of America Securities analyst David Barden upgraded SBA Communications from Neutral to Buy and announced a $260 price target.

… and Downgrades:

Xenia Hotels & Resorts Inc (NYSE: XHR) March 4, B. Riley Securities analyst Bryan Maher downgraded Xenia Hotels from Buy to Neutral but raised the price target from $16 to $17.

Ares Commercial Real Estate Corp (NYSE: ACRE) and five other mortgage REITs were downgraded by Bank of America. See “One For The Road” below for more information.

ONE BIG THING

A Handful of Office REITs Continue To Defy The Negative Predictions

What: It was former Vice President Spiro T. Agnew who coined the phrase, “Nattering Nabobs of Negativism” in describing members of the media with whom he was often at odds. That slogan comes to mind when one sees the large number of financial analysts and media pundits who have predicted the death of office REITs.

Yes, it’s true- many office REITs, such as Office Income Properties Trust (Nasdaq: OPI), Orion Office REIT Inc (NYSE: ONL) and City Office REIT Inc (NYSE: CIO) and Hudson Pacific Properties Inc (NYSE: HPP) have suffered declines of 30% or more year-to-date. Declining revenue and earnings, owning properties in higher vacancy locales and excessive debt levels have weighed on those issues.

But there are also a handful of office REITs that are weathering the storm for one reason or another, and are actually profitable this year, even after racking up tremendous gains throughout November and December 2023. These office winners year-to-date include Net Lease Office Properties (NYSE: NLOP), up 31.66%, SL Green Realty Corp (NYSE: SLG), up 7.91%, Highwoods Properties Inc (NYSE: HIW), up 7.42% and Strawberry Fields Reit Inc (NYSEAMERICAN: STRW), up 3.12%.

Net lease Office Properties is the spin-off from WP Carey Inc (NYSE: WPC). Since November 2, 2023, when it opened at $12.29, it’s done nothing but run higher and as of Wednesday morning reached a high of $24.20- almost a double in only four months. Makes you wonder why WPC felt the need to spin these properties off when they could have simply sold off the less profitable ones and held on to the NLOP portfolio.

SL Green is the largest landlord of office properties in New York City. Given up for dead almost a year ago when it bottomed at $17.23, and despite declining FFO and revenue over the past year, it’s tripled in price since then.

On March 28, 2023, in what could be the worst analyst call of all time, Citigroup analyst Nicholas Joseph maintained a Sell rating on SLG and slashed the price target from $35 to $17. SLG closed at $17.63 that day, jumped up $3 the following day and in total has blasted about 194% higher since then, hitting a 52-week high on Thursday morning of $52.10.

Pundits aside, reports of the demise of New York City office work are grossly overblown, and the best of breed office REITs continue to reward patient shareholders who refused to panic during the darkest hours.

Houses Before Spouses? Don’t Do It!

What: The current social media-inspired movement among Millennials and Gen Z to pool money together with non-spouse partners to buy a home, either as owner occupants or as real estate investors.

Why: Younger generations are frustrated at their inability to buy a home with prices and interest rates still so high. In previous weeks here, we’ve outlined alternatives such as buying in less expensive states, getting assistance through organizations like NACA, or even that less than great idea of buying a Tiny House.

Well, here’s another bad idea gaining in popularity- Millennial and Gen Z singles buying a home with friends, acquaintances, strangers or relatives.

Yes, for younger buyers who lack the money for down payments and closing costs, there can be financial benefits to pooling one’s money with another. It may save the partners money versus renting and one can begin to build equity sooner rather than waiting until marriage. And with the marital age having increased since 1980 from 25 to 30 for grooms and 22 to 28 for brides, many single persons feel it’s the only way they’ll be able to buy real estate.

But there are serious problems with purchasing a home with a friend, acquaintance or family member. Buying a home is probably the largest financial commitment that most people will ever make. There are many risks involved, financially, legally, and socially. Friendships or familial relationships are bound to be strained if/when disagreements arise over making repairs, whether to sell or keep the asset, whether or not to refinance the mortgage, decisions on tenants and many more issues that often arise.

Another common problem is if one of the partners loses their job and can no longer pay the mortgage. With both persons on the mortgage, if a foreclosure or late payments result, the credit reports of both take a hit.

Unmarried romantic partners who buy a house together are just as much at risk, since they are more likely to break up than married couples. And after a break up, the emotions of one or both may overcome rational decision making on what should happen with the house.

Financial adviser Dave Ramsey was recently asked by an unmarried couple about buying a home together. He responded, “I will not advise you to buy a house with someone to whom you’re not married. You’re talking to a guy who’s been doing this for 35 years, and I’ve heard all the horror stories that ago along with, ‘We bought the house together, but we didn’t make it to the altar together.’ Talk about an ugly breakup!”

Takeaway: Despite a number of younger people bragging on TikTok or other social media about the benefits of buying homes with friends or even acquaintances, it’s just a bad idea, period. Unfortunately, they probably won’t find out why until after they’ve done it.

ONE FOR THE ROAD

BOA Downgrades Six Mortgage REITs

Who: On March 4, Bank Of America Securities research analyst, Eric Dray downgraded six Commercial Real Estate (CRE) mortgage REITs, saying among other things that mortgage REITS (mREITs) face a “rocky road” ahead.

Which: The table below shows the six REITs that BOA downgraded:

Why: Dray told clients the mREIT sector will likely continue to have interest rate headwinds and weakening fundamentals. He added that the mREITs may suffer a decline in book values, along with a lack of investor sentiment in 2024.

Dray said that REITs such as ACRE, BRSP and Blackstone have significant exposure to commercial office properties that are suffering from slow return-to-office headwinds and portfolio maturities. Dray feels that Apollo and TPG RE Finance are at risk for dividend cuts. Starwood has less exposure to office properties but also has upcoming maturities.

Dray also noted, “CRE fundamentals remain shaky and as rates stay higher for longer, we think pressure will mount on CRE mREIT portfolios.” Rising interest rates threaten property values and the ability of tenants to refinance maturing loans, leading to an increase in defaults.

Takeaway: All six of the mREITs sold off in the days following the downgrades. As of Thursday morning, ACRE was down 4.70%, TRTX 3.65%, ARI 3.31$, BRSP was off 2.5%, BXMT 1.59% and STWD 0.92%. Mortgage REITs have been sliding since the beginning of January, and these downgrades added fuel to the fire.

At some point, the Federal Reserve will finally cut interest rates and mREITs will take off, but at this point, nobody, including Jerome Powell, seems to know when that will be. Investors who wish to speculate on lower priced mREITs with higher dividend yields may get a chance very soon to buy these issues at substantial discounts, but hang on for a rocky road and a bumpy ride.

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.