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As an investor, it's always exciting to see positive news on one of your stocks that could potentially increase the share price. The news might be a dividend raise, a good earnings report, a new product, service, or alliance, or an analyst upgrade from a prestigious brokerage or bank. When price target increases accompany the upgrade, the positive effect on a stock can be even greater.
Three real estate investment trusts (REITs) received analyst upgrades and price target increases last week. Two were mortgage REITs (mREITs) and the third was an Industrial REIT. Take a look:
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Eastgroup Properties Inc. (NYSE:EGP) is a Ridgeland, MS-based industrial REIT that operates primarily in the Southeastern states and the west coast of the U.S. 89% of its portfolio is business distribution buildings. Its total portfolio, including properties currently under development, is approximately 60.2 million square feet.
Eastgroup was founded in 1969 and is a member of the S&P Mid-Cap 400 and Russell 1000 indices. As of June 30, 97.4% of its properties were under lease.
Recent news on Eastgroup Properties has been very positive:
On July 23, Eastgroup released its second-quarter operating results. Funds from Operations (FFO) of $2.05 per share was in line with the consensus estimate but well above FFO of $1.89 from Q2 2023. Revenue of $159.09 million beat the estimate of $157.00 million and easily topped revenue of $138.89 million in the year-ago same quarter.
Analysts have reacted positively to the Eastgroup earnings report. On Sept. 5, Mizuho analyst Vikram Malhotra upgraded Eastgroup Properties from Neutral to Outperform and raised the price target by 14.2% from $175 to $200.
In Malhotra's view, Eastgroup is underappreciated by the market. Rent growth will likely be better than the market anticipates, and Eastgroup's history of capital allocation makes it a good defensive choice.
Wells Fargo analyst Blaine Heck is another supporter of Eastgroup Properties, having upgraded it on Aug. 28 from Equal-Weight to Overweight while raising the price target from $179 to $214. On that same day, Evercore ISI Group analyst Steve Sakwa maintained Eastgroup Properties at In-Line and raised the price target from $188 to $192. Three other analysts raised price targets on Eastgroup in August as well.
On Aug. 23, Eastgroup announced its Board of Directors approved a 10.2% increase to its quarterly dividend, raising it from $1.27 per share to $1.40, payable Oct. 15 to shareholders of record on September 30. This was the 28th dividend increase over the past 31 years. The yield is now 3.03%.
KKR Real Estate Finance Trust
KKR Real Estate Finance Trust Inc. (NYSE:KREF) is a New York City-based mortgage REIT (mREIT) that provides customized and structured collateralized loans to commercial real estate projects. It has a current portfolio of approximately 66 loans across the U.S. worth $6.6 billion. About 60% of its loan portfolio is in multifamily and industrial properties. 100% of its portfolio are Senior Loans.
On July 22, KKR Real Estate Finance reported its second-quarter operating results. Earnings per share (EPS) of $ (1.57) beat the consensus estimate of $ (1.67), but earnings were far below $0.48 per share in the second quarter of 2023. Revenue of $40.433 million was 9.81% better than estimates for $36.820 million but below revenue of $43.952 million in Q2 2023.
On Sept. 5, Keefe, Bruyette & Woods analyst Jade Rahmani upgraded KKR Real Estate Finance from Market Perform to Outperform and raised the price target by 13% from $11.50 to $13.
Other analysts have recently weighed in on KKR Real Estate. On July 30, Keefe, Bruyette & Woods analyst Jade Rahmani maintained KKR Real Estate with a Market Perform rating and raised the price target from $9.75 to $11.50. KKR Real Estate, with a recent close of $12.15, has already surpassed that price. On July 19, BTIG analyst Thomas Catherwood assumed KKR Real Estate at Buy and also announced a price target of $11.50.
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Starwood Property Trust Inc. (NYSE:STWD) is a Greenwich, CT-based mREIT that acquires, finances, and manages first mortgages, mezzanine loans, and other types of loans for commercial and residential real estate. Starwood Property Trust is an affiliate of Starwood Capital Group, has a $26 billion portfolio of loans, and operates throughout the U.S., Europe, and Australia. Its IPO was in 2009.
On Sept. 5, Keefe, Bruyette & Woods analyst Jade Rahmani upgraded Starwood Property Trust from Market Perform to Outperform and raised the price target by 9.7% from $20.50 to $22.50. This followed Rahmani's price target raise from $20 to $20.50 on August 9.
On Aug. 6, Starwood announced its second-quarter operating results. Earnings per share (EPS) of $0.48 per share just missed the analyst consensus forecast of $0.49. Revenue of $489.83 million missed the estimate of $515.14 million and was below Q2 2023 revenue of $515.67 million.
On Sept. 3, Starwood Property Trust announced it would offer 17.5 million shares of its common stock in an underwritten public offering. Underwriters have a 30-day option from the offering date to purchase up to an additional 2.625 million shares. Net proceeds from the sale will be used to originate and purchase additional commercial mortgage loans and other investments and for general corporate purposes, including debt repayment.
Only two days later, Starwood announced that the underwriters had completed the public offering and would now exercise the option to purchase the full 2.625 million shares. The aggregate net proceeds of the 20.125 million shares of common stock will be approximately $391.70 million.
Investors should remember that analysts are only about 50% accurate, and it's best to perform due diligence before buying or selling any stock.
Better Yields Than Some REITs?
The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through publicly-traded REITs.
Arrived Homes, the Jeff Bezos-backed investment platform has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. It paid 8.1% in July. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
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