On Nov. 14, when the October consumer price index (CPI) came in flat, real estate investment trust (REIT) investors rejoiced. Inflation and the subsequent resulting higher interest rates have led to the slashing of REIT share prices since April 2022.
But the weaker-than-expected CPI reading this week most likely means there will be no Federal Reserve rate hike in December and raises hopes for an interest rate cut or two in 2024.
Although all REITs were up big this week on the news, office REITs in particular were the No. 1 beneficiary of the good CPI report. Many of them have been struggling with the possibility of having to refinance debt at higher rates, so any relief in interest rates would be a boon to the office subsector. Several office REITs have also fared better recently on talk of more workers returning to the office, either full or part time.
Take a look at three low-priced office REITs with high dividend yields that had scorching returns after the CPI report came out along with a look at how several other office REITs have performed over the last five trading days.
Brandywine Realty TrustBDN is a Philadelphia-based REIT that as of Sept. 30 owns, develops, leases and manages 160 diverse mixed-use commercial properties from the Northeast to Texas. It has over 22 million square feet of rentable space.
On Oct. 24, Brandywine Realty Trust reported its third-quarter operating results. Funds from operations FFO of $0.29 per share beat estimates of $0.28 per share but was well below FFO of $0.36 in the third quarter of 2022. Revenue of $129.37 million missed estimates of $129.51 million but was above revenue of $125.57 million.
Not many analysts cover this REIT, but KeyBanc analyst Jordan Sadler has an Overweight rating on Brandywine Realty with a $6 price target.
On Nov. 14, Brandywine climbed 14.29%. Its five-day return is 6.53%, and its annual dividend of $0.60 yields 14.15%. On Sept. 20, Brandywine Realty cut its quarterly dividend from $0.19 to $0.15. This was the first time since 2009 that it cut its dividend, so hopefully that won’t lead to more cuts going forward. The payout ratio is a manageable 62%.
Hudson Pacific Properties Inc.HPP is a Los Angeles-based office REIT with 51 office properties and four studio properties with an emphasis on centers of innovation for media and tech companies in California, Washington state and Vancouver, British Columbia. Its office occupancy rate is 87%.
Hudson Pacific Properties was founded in 2006 by Chairman and CEO Victor Coleman. Soon after its creation, it began purchasing motion picture studios and office buildings on the West Coast. Hudson Pacific Properties went public in 2010. It has a market cap of $690.43 million. The 52-week range is $4.05 to $12.23.
On Nov. 1, Hudson Pacific reported its third-quarter earnings. FFO of $0.20 per share was in line with analyst estimates but far below FFO of $0.52 in the third quarter of 2022. Revenue of $231.44 million missed estimates of $238.37 million and was 11.1% below revenue of $260.35 million in the third quarter of 2022.
On Nov. 13, BofA Securities analyst Camille Bonnel downgraded Hudson Pacific Properties from Neutral to Underperform.
But other analysts see Hudson Pacific in a different light. On Nov. 10, Piper Sandler analyst Alexander Goldfarb maintained an Overweight position on Hudson Properties, but he lowered the price target from $9 to $8.
On Oct. 18, Mizuho analyst Vikram Malhotra upgraded Hudson Pacific from Underperform to Neutral and announced a $7 price target. Malhotra noted that despite several negatives still ongoing, progress on the actors’ strike and actions to shore up the balance sheet will help Hudson Pacific in the future. Since Malhotra wrote those notes, the actors’ and writers’ guilds have settled their strike.
On Nov. 14, Hudson Pacific bolted up 14.08%. Its five-day return is 10.74%, and its $0.52 annual dividend yields 10.74%.
City Office REIT Inc.CIOis a Dallas-based office REIT with 58 buildings totaling 6 million square feet. City Office focuses on the Sun Belt regions, West Coast and select areas of Florida. Its occupancy rate is 85.4%.
On Nov. 9, City Office delivered its third-quarter operating results. FFO of $0.34 per share beat the estimate of $0.33 but was below FFO of $0.39 in the third quarter of 2022. Revenue of $44.21 million topped estimates of $43.97 million but was below revenue of $45.52 million in the third quarter of 2022. City Office also reiterated its outlook for core FFO of $1.38-$1.40 per share.
On Nov. 14, after the CPI report, City Office REIT shot up 13.08%, and its five-day price performance is 14.18%. Its annual dividend of $0.40 yields 14.18%, but that seems fairly safe given that the payout ratio is only 29.4%.
Other Noteworthy Office REITs have also fared very well this week off the CPI report:
SL Green Realty Corp.
Vornado Realty Trust
Kilroy Realty Corp.
Piedmont Office Realty Trust
Douglas Emmett Inc.
Office Properties Income Trust
Boston Properties Inc.
Cousins Properties Inc.
Office REIT investors are hoping this week’s rally will have some legs to it because the sector has been so beaten down since 2022.
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