👋 Happy Friday, Everyone. Last week we asked if you’d like us to send this newsletter on Saturday instead of Friday. Here are the results:

🟨⬜️⬜️⬜️⬜️⬜️ Friday

🟨⬜️⬜️⬜️⬜️⬜️ Saturday

🟩🟩🟩🟩🟩🟩 Either is fine

We’ll stick with Friday for the time being, but please continue to let us know what you like and don’t like about this letter.

Before we dive in: Today's edition is brought to you by BAM Capital. Benzinga subscribers can invest in the firm’s latest fund, the BAM Multifamily Growth & Income Fund IV, which seeks to balance cash flow stability, capital preservation, and long-term capital appreciation while providing superior risk-adjusted returns to investors.

EDITOR’S NOTE

This was not the week for the squeamish. After another hot Job Openings report of 9.6 million, the 10-year bond hit 4.791% on Tuesday morning, the highest rate in 16 years. On Wednesday, it pushed up even closer to 5%. After a couple of solid days last week, the market hit the skids again this week. Interest rate-sensitive real estate investment trusts (REITs) were whacked once more, with a majority of REITs in negative territory this week. Finding a bullish trader right now is like trying to find the proverbial needle in a haystack.

Wall Street seems to be sending an anguished message to the FED for it to give investors some hope. When markets decline in September, October is often a month that sees a selling climax early in the month, followed by sustained gains through the end of the year. Will that be the case in 2023? Is there blood in the streets yet? Does the smart money begin to pick up shares now? We shall see.

📈 Biggest Winners This Week: Healthcare REITs are looking stronger

• Creative Media & Community Trust Corp (Nasdaq: CMCT) Up 8.75%

• Geo Group Inc (NYSE: GEO) Up 4.42%

• Welltower Inc (NYSE: WELL) Up 2.55%

• Summit Hotel Properties Inc (NYSE: INN) Up 2.22%

• National Health Investors Inc (NYSE: NHI) Up 2.17%

• Alpine Income Property Trust (NYSE: PINE) Up 1.91%

• CBL & Associates Properties, Inc. (NYSE: CBL) Up 1.57%

📉 Biggest Losers This Week: Office and Mortgage REITs

• Wheeler Real Estate Investment Trust Inc (Nasdaq:WHLR)Down 39.56%

• Brandywine Realty Trust (NYSE: BDN) Down 12.78%

• Mfa Financial Inc (NYSE: MFA) Down 12.76%

• Outfront Media Inc (NYSE: OUT) Down 12.61%

• Western Asset Mortgage Capital Corp (NYSE WMC) Down 12.41%

• Invesco Mortgage Capital Inc (NYSE: IVR) Down 12.25%

• Hudson Pacific Properties Inc (NYSE: HPP) Down 10.71%

• Arbor Realty Trust Inc (NYSE: ABR) Down 10.44%

• ARMOUR Residential REIT, Inc. (NYSE: ARR) Down 10.37%

• Global Net Lease Inc (NYSE: GNL) Down 10.25%

Prices as of October 5, 12:00 Noon

ONE BIG THING

The Big Fizzle

Briefly: You know times are tough when an oversold market fails to blast higher on good news. It’s a sure sign of bearish sentiment running amok on Wall Street.

What Happened: This past week investors cheered a milder than expected August Personal Consumption Expenditure (PCE) core rate that initially lifted stocks Friday morning, only to see the indices give back the gains later in the day. The PCE rate is the one the FED favors as its best reading on inflation and the 0.1% increase was below the expected 0.2% rate. That should have given the markets a sustained jolt. But it didn’t and that’s worrisome.

Then on Monday, the Dow and S&P 500 were both sluggish even with the news that a Congressional 11th hour settlement over the weekend had prevented a Government shutdown. Perhaps Wall Street has seen the same drama unfold too many times with the usual “kick the can down the road” ending, to get really excited. But only the Nasdaq rallied on the news.

REITs were hammered once again. Even big name REITs like Realty Income Corp (NYSE: O) and Agree Realty Corporation (NYSE: ADC) were down 2% or more. Tuesday was more of the same. Markets rallied on a weaker than expected jobs report on Wednesday, but there was little follow through on Thursday morning when the weekly initial jobless claims was just slightly below forecasts.

Some pundits were reminding investors that big sell-offs in September are usually followed by rebounds in October, but that wasn’t the case as the first week in October began.

Fall Out: REIT investors are tired of seeing their favorite REITs getting crushed and waiting for Wall Street to adapt to the possibility of rates remaining higher for a while. After all, rates were abnormally low for so long, this is really just a shift back to more “normal” rates. But with the no-risk 10-year treasury yield inching closer to 5%, it’s difficult for investors to get excited by 4%-5% REITs. 

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.

UPGRADES AND DOWNGRADES:

Invitation Homes Inc (NYSE: INVH) October 2, Evercore ISI Group analyst Steve Sakwa upgraded Invitation Homes from In-Line to Outperform and announced a $37 price target.

Macerich Co (NYSE: MAC) October 2, Piper Sandler analyst Alexander Goldfarb upgraded Macerich from Underweight to Neutral and raised the price target from $11 to $12.

Sun Communities Inc (NYSE: SUI) October 2, Bank of America Securities analyst Joshua Dennerlein downgraded Sun Communities from Buy to Neutral

REIT ROUND-UP

Hersha Hospitality Trust Class A (NYSE: HT) October 3, announced it has set a special meeting for November 8 to approve its acquisition by KSL Capital Partners.

Medical Properties Trust Inc (NYSE: MPW) October 3, announced the Australian Foreign Investment Review Board has approved HMC Capital to proceed with its acquisition of Medical Properties’ four remaining Australian facilities for AUD $470 million ($298.31 million USD). The transaction is expected to close in October.

Four Corners Property Trust Inc (NYSE: FCPT) October 3, announced it has disposed of a Red Lobster property in Kentucky for $3.8 million. The restaurant was corporate-owned under a triple net lease. This is the third time in the past month that Four Corners has sold a Red Lobster restaurant, as it seeks to dispose of its higher risk assets. Red Lobster has already closed several sites in 2023 as it faces financial hardship. The three sales combined have totaled approximately $15 million, which Four Corners will use to acquire new properties under a 1031 tax deferred exchange program.

Empire State Realty Trust Inc (NYSE: ESRT) October 2, announced it has acquired two properties in Williamsburg, Brooklyn for an aggregate price of $26.40 million.

Easterly Government Properties Inc (NYSE: DEA) October 5, announced it has purchased a 95,273 square foot workman’s comp training facility in Anaheim, CA that is 100% leased to the state of California with a 10.7 year weighted average lease term (WALT). In addition, Easterly has acquired a 97,969 square foot Department of Homeland Security facility in Atlanta, GA. Terms were not disclosed.

Terreno Realty Corp (NYSE: TRNO) October 5, announced it has disposed of an industrial property in Hanover, MD for approximately $18.0 million. The 13.4 acre property was purchased by Terreno for $8.2 million in 2016 and was 100% leased to one tenant.

Insider Purchases:

Acres Commercial Realty Corp: October 4, Eagle Point Credit Management LLC, a 10% owner of Acres Commercial Realty, purchased 7986 shares of Acres’ common stock in a total transaction of $169,321. This is Eagle Point’s third large purchase of company stock over the last three months.

Agree Realty Corporation: October 2, CEO & President, Joey Agree purchased 4,000 shares of Agree Realty @ a weighted average price of $53.84. The total purchase of $215,360, gives him a total of 553,303 shares controlled, directly or indirectly. CEO Agree has made multiple purchases over the past few weeks, as have other insiders at Agree Realty.

HOUSING NEWS BRIEF

After climbing above 8% at the end of last week, 30 year mortgage rates pulled back to 7.81% this week. It was the largest one-day drop in six months, but that’s little solace to the millions of Americans who cannot afford to buy a first home nor to the pre-existing homeowners who don’t want to trade up their 3%-4% present mortgage into a more expensive home with rates nearing 8%.

The 15-year loan, at 7.22% is slightly better, but the higher payments on the shorter term loan are unaffordable for most people, especially first-time homebuyers. Even the risky 5-year adjustable rate mortgages (ARM) are over 7%.

As for the chart above, keep in mind that the rate shown is for Conventional loans with 20% down and a FICO score of 700-760. A smaller down payment or lower credit score could make one’s rate even higher. The 30-year average loan hasn’t been at 8% since the year 2000, and those who invested in stocks then, especially in the Nasdaq, can well remember the gut-wrenching market of 2000-2002.

The FED keeps promising a soft landing recession, but think back to 2007 when the real estate industry collapsed. Millions of people lost their jobs as new construction shut down and pre-existing home sales hit the skids. There are literally dozens of people involved in each typical home sale transaction, and when sales decline, people get laid off in bunches.

Home sales peaked in 2021 at 6.9 million nationwide. In 2022, sales declined to 5.8 million. Through the end of August, there were 4.04 million sales in 2023, and the projection is for another year-over-year decline by the end of December.

Another impact on the Real Estate market could be the re-starting of student loan payments. Those who may have been saving a few hundred dollars a month to go toward a down payment during the student loan deferment, will now have to use that money to start paying back their loans again.

It’s a tough time to be Jerome Powell and have to make the hard decisions that impact upon so many lives.

ONE FOR THE ROAD

Wedbush Goes Wild For REITs

Who/What? On October 3, Wedbush Securities, a wealth-management, brokerage and advisement firm, initiated coverage on 28 REITs in one fell swoop before the market opened. The majority of them were residential, hotel and healthcare REITs. But even a few office and specialty REITs were thrown into the mix. Every REIT cited was initiated with either a Neutral or Outperform rating by analyst Richard Anderson, who must have been burning the midnight oil lamp over several nights to put out such a massive list.

Here is a chart of some well-known REITs with new Wedbush ratings:

The Takeaway: Healthcare REITs have been stronger lately after a long decline. Occupancy levels are higher and almost back to pre-COVID numbers. Rents are finally being paid by formerly struggling operators. Apartment REITs should continue to flourish, given the difficulty for younger generations to buy a home right now with high prices and the 30-year mortgage approaching 8%. The gaming stocks are doing fairly well. People love to gamble, especially when the economy is suffering with inflation or recession.

The inclusion of office on the list is a bit surprising, given the recent reports about impending debt maturities and predictions about further declines in occupancy rates. However these stocks have been so badly pummeled, they may have already reached their bottom. At any rate, it’s refreshing, in the middle of another big REIT sell-off, to see some optimism on so many REITs by one analyst.

QUICK QUESTION

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.