Eq: Real Estate
According to data compiled by S&P Global Market Intelligence, ninety-nine U.S.-based publicly traded REITS announced increases to their dividend payments last year, representing about 61.5% of the entire U.S. REIT industry. The self-storage industry reported the highest percentage of dividend hikes relative to the sector's total, with 83.3% announcing dividend increases during 2022. The industrial sector placed second, with 81.8% increasing dividends. The retail industry had the biggest number of REITs that announced dividend hikes last year at 25, 80% of all retail REITs. In addition, close to 70% of U.S. REIT dividend hikes in 2022 surpass pre-COVID payouts. In fact, 68 out of 99 U.S. REITs that announced dividend hikes last year posted higher regular dividend payouts by year-end when compared to dividends in 2019. However, 27 were still paying lower dividends relative to their 2019 dividend payments. This included four hotel REITs that only reinstated their dividends last year after suspending payouts in 2020 and 2021. The remaining 4 had not started trading yet on a major exchange in 2019. In terms of the highest percentage jump in dividends, Service Properties Trust, which focuses on hotels, led all U.S. REITs with year-over-year dividend payout hikes last year. The company raised its quarterly cash dividend to 20 cents per share on Oct. 13, from a 1-cent-per-share paid during the fourth quarter of 2021. However, its current dividend is still below its pre-COVID dividend of 54 cents per share.
Finsum:Over 60% of U.S. REITs announced increases to their dividend payments in 2022, led by the self-storage industry, the industrial sector, and the retail industry.
KKR has become the latest non-traded REIT to limit redemptions. The company revealed in a regulatory filing this week that investors sought to withdraw more than 8% of KKR Real Estate Select Trust’s (KREST) $1.6B in assets during the past three months. KKR said the KREST redemption requests far exceeded its 5% quarterly limit in the past three months. Barron’s reported that the company wrote in its filing that the REIT limited withdrawals to 62% of requests. This follows news last month that the Blackstone Real Estate Income Trust (BREIT) and the Starwood Real Estate Income Trust (SREIT) limited withdrawals after quarterly and monthly redemption limits were breached. Investors have been running for the exits at non-traded REITs, triggering withdrawal limits the REITs use to prevent them from having to make forced sales. The non-traded REITs say they need redemption caps to protect investors because their corporate real estate (CRE) assets typically have limited liquidity. In the regulatory filing, KREST CEO Billy Butcher said “Within KREST, we are balancing providing access to private real estate, which is an illiquid asset class, with the recognition and understanding that regular liquidity is an important feature for KREST shareholders.”
Finsum:KKR becomes the latest non-traded REIT to limit redemption requests to maintain liquidity.
In an interview with Russ Alan Prince in Financial Advisor Magazine, Jeffrey Schwaber, Chief Executive Officer of Bluerock Capital Markets, stated that he believes real estate is well-positioned to outperform in 2023. He noted that while some economic indicators are pointing towards a possible recession this year, “real estate market fundamentals remain very healthy.” He referenced the difference in real estate during the Financial Crisis and now. For instance, the three key factors that negatively impacted real estate during the financial crisis, supply, leverage, and jobs, are all now healthy. Real estate supply as a percentage of total inventory is the lowest it has been in the "trailing 10-year period compared to previous periods and is forecasted to remain at lower levels." The use of leverage since the Financial Crisis has been the lowest of any “real estate/economic recovery” in the last forty years. As for jobs, the unemployment rate was 3.7% as of November, close to the lowest level in 10 years. In terms of where to invest, Schwaber is bullish on the industrial, life science, and single-family residential sectors. The growth of online retail is driving demand for warehouse and distribution centers on the industrial side. Life science real estate offers an attractive opportunity due to significant growth in biotech research, and the significant undersupply of apartments and single-family rentals is fueling the residential housing market.
Finsum:Due to healthy fundamentals, Jeffrey Schwaber, Chief Executive Officer of Bluerock Capital Markets, believes real estate will outperform this year in the industrial, life science, and single-family residential sectors.
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The real estate market took a big hit last year as interest rates rose substantially. As debt became more expensive, real estate investors lost purchasing power. For instance, the average 30-year fixed mortgage is more than double where it was in January 2021. This led to sales of luxury homes in the U.S. falling 38.1% from the previous year during the three months ending on November 30th. According to Redfin, it was the largest decline on record. Ari Rastegar, the founder, and CEO of Rastegar Property Company believes that if investors have the liquidity and the ability to execute on investment opportunities, this is a generational buying opportunity. He noted, "This is not 2008 where the banks are jeopardized. The banks have good bills of health, we don't have these subprime loans that are going to blow up. Additionally, we are beginning to see inflation soften. The Consumer Price Index, which peaked in June at 9.1%, has been gradually declining.” He also noted investors don't have to invest in property to take advantage of this opportunity. He told Business Insider that REITs are also on clearance. Rastegar expects the multi-family and industrial property to recover the fastest and recommends looking at the Blackstone Real Estate Income Trust (BREIT) and the Starwood Real Estate Income Trust (SREIT).
Finsum:Due to a record decline in luxury home sales in the U.S., real estate investor Ari Rastegar believes this is a general buying opportunity for investors.
According to industry group Nareit, REITs are well-positioned to navigate economic and market uncertainty in 2023 due to strong operational performance and balance sheets. As part of their 2023 REIT Outlook, the firm wrote, “despite economic headwinds and weakness in valuations, equity REITs have proven to be quite resilient from an operational perspective, and it is clear that REITs are well-positioned for ongoing economic uncertainty in 2023.” The firm noted that data from the Nareit T-Tracker in the third quarter of 2022 highlighted solid year-over-year growth in funds from operations (FFO), net operating income (NOI), and same-store NOI. Quarterly FFO increased to $19.9 billion in the third quarter, a 14.9% increase from a year ago and an all-time high. While the pandemic took a toll on the operational performance of equity REITs, there’s no question that it has recovered and surpassed pre-pandemic levels. Nareit also noted how REITs historically perform during and after a recession. For example, REITs have historically outperformed private real estate during a recession and in the four quarters after a recession. REITs have also historically outperformed their equity market counterpart before, during, and after recessions.
Finsum:Based on Nareit's 2023 outlook, REITs are well-positioned to navigate market uncertainty and a potential recession due to strong operational performance.
Over the last few years, the housing market has clearly been a sellers’ market, with many buyers missing out on their dream homes. But that may be changing as the market starts to cool off. In fact, 2023 could mark a turning point according to some real estate analysts. For instance, Danielle Hale, chief economist for Realtor.com, recently wrote in her housing forecast, that “there will be more homes for sale, homes will likely take longer to sell, and buyers will not face the extreme competition that was commonplace over the past few years.” Matthew Speakman, senior economist for Zillow told MarketWatch in an email, that “competition has lessened and negotiating power is flowing from sellers to buyers. This means that in many cases, buyers don’t have to settle for the first house they can win a bid on, and inspection and finance contingencies are back on the table.” In addition, Fannie Mae, Freddie Mac, the National Association of Realtors, and the Mortgage Bankers Association all forecast some type of decline in mortgage rates next year, which would make it more affordable for buyers to secure mortgages. However, this doesn’t mean it will be a buyers’ market next year. Lisa Sturtevant, the chief economist for Bright MLS, warns that “even if buyers have more negotiating power than they had in 2021, it is still very much a seller’s market.”
Finsum:While 2023 is expected to be a better year for real estate buyers due to more inventory, less competition, and lower mortgage rates, it will still likely be a sellers’ market.