MARKET UPDATE - A Wave of Good News Across Our REIT Portfolio
Important Note
Before going into today’s article, I wanted to let you know that we will soon conduct interviews with the management teams of the following REITs:
Agree Realty Corporation (ADC)
VICI Properties (VICI)
Gaming and Leisure Properties (GLPI)
NewLake Capital Partners (OTCQX:NLCP)
Gladstone Land (LAND)
Canadian Net REIT (NET.UN:CA)
Let me know if you have any questions for them, and I will make sure to ask them for you. You can put your questions in the comment section below.
Thanks!
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MARKET UPDATE - A Wave of Good News Across Our REIT Portfolio
You win some, you lose some.
Q3 has been rather disappointing for us so far, with recession fears hurting companies like Caesars (CZR), and then Alexandria Real Estate (ARE) surprising all of us with a dividend cut warning.
But today, we finally have some good news to share.
First, our largest international holding, Patria Investments (PAX), just shared a surprise of its own: it is going to hike its dividend by 8.3% going into 2026, marking the start of a new dividend policy. We predicted this shift in policy earlier this year, expecting it to send a strong signal and push the share price to higher levels, and that’s exactly what has happened. Initially, the market reacted to this by sending the share price nearly 10% higher in a single day, and that’s after already rising by 50% earlier this year:
Its results were very strong, with continued rapid growth in its AUM, which is resulting in growing fee income. The company now expects to exceed the high end of its fundraising target for 2025, and expressed growing confidence in reaching its targets for 2026 and 2027.
So far, they have consistently underpromised and overdelivered, and if they can meet these targets, we would expect a lot more upside and dividend growth in the years ahead.
That’s very welcome, especially coming from such a large holding, representing 11% of our International Portfolio.
Even better news, our second-largest international holding, Helios Towers (HTWS / HTWSF) surged by 13% in a single day after announcing much better results than anticipated, hitting many 2026 targets essentially a year early, which will now allow it to now enter its next strategic phase called “IMPACT 2030”, aiming at continuing its rapid organic growth, all while retruning more than $400 million to shareholders via buybacks and dividends by 2030.
That’s about 20% of its market cap!
I will keep this short since we are planning to share a new investment thesis next week, but its stock has now nearly doubled since the beginning of this year. A huge win for us, given that it is a very big position, representing 10% of our International Portfolio.
Another piece of good news is that Whitestone REIT (WSR) just received yet another buyout offer, which initially sent its share price soaring by 15%.
Since then, it has also given up a good chunk of that, as the market digested the buyout offer and realized that it is unlikely to be approved.
Whitestone’s third biggest shareholder, owning 9.2% of the company, is a private equity firm called MCB Real Estate. Last year, it offered to buy out Whitestone at $15 per share, but this deal was rejected as it would undervalue the company’s NAV, which we estimate to be closer to $20.
Now, they are back with a $15.20 offer, and some threats of potential activism if they reject the offer once again.
But I expect the offer to get rejected again, and would not be surprised if we see yet another (higher) offer within a year from now. Whitestone’s properties are enjoying solid growth, even as cap rates are expected to compress as a result of the undersupply, improving fundamentals, and rate cuts.
MCB knows this, and this is why they want to buy out the whole company. But Whitesone knows this as well, and that is why they refuse to sell at a steep discount.
I side with Whitestone’s management here, but appreciate MCB’s efforts to put additional pressure on Whitestone to unlock value for shareholders.
It is great news overall, and I would expect the REIT’s share price to continue rising closer to its NAV. There is a lot of upside potential left.
International Workplace Group (IWG / IWGFF), our single largest holding by far, reported a strong acceleration in growth, with fee income from its managed space division rising by 83% year-over-year.
They also reported a 40% surge in signings following the expansion of their sales team, which translated into 335 new signings in a single quarter! That’s huge, considering that they only operate about 4,000 locations right now.
So the capital-light transformation of their business is happening at a very pace and this is finally starting to be rewarded. Its stock initially rose by 3.5% and it is now up 55% from its lows earlier this year:
Kite Realty Group (KRG), another top 5 position for us, also announced a 7.4% dividend hike, which is the biggest hike that I know of for any REIT trading at such a low multiple. It truly moves the needle for us since Kite is a big position.
Its larger peer, Kimco Realty (KIM), also hiked its dividend by 4%. It probably could have hiked it even more, but it also launched a new $750 million share buyback plan and likely wanted to retain more cash flow for this.
Uniti Group (UNIT) also surged 7% after reporting strong results and closing its merger with Winstream, which marks an important turning point in the company’s history. It removes the existential tenant risk that depressed the company’s market sentiment and held back its growth. It also now positions the company as the premier insurgent fiber provider with attractive long-term growth prospects, supported by the AI revolution as well.
Here is what they said:
“There has never been a better time to be a wholesale fiber provider. Broadband trends are accelerating across virtually all categories, especially AI-driven use cases, as evidenced by another strong quarter of new bookings. Although we’re building substantial amounts of new fiber, especially for the hyperscalers, our scaled national footprint gives us terrific lease-up potential, driving our blended cash yields to 34%, the highest we’ve ever seen, and we believe there’s more to come.”
As they now keep growing and reinforcing their balance sheet, we also expect their average interest rates to come down substantially, given that it is currently at 8%. Just recently, they issued some debt at a 5.7% interest rate, so there is a lot of potential for growth just from its debt costs coming back down now that its tenant issue has been resolved.
More upside ahead:
Then, this is a bit older news already, but Segro PLC (SGRO / SEGXF), our largest European industrial / data center REIT, reported strong results and has surged by about 10% since our last purchase just weeks ago.
Most notably, they are making great progress expanding their data center business, and this appears to have finally caught the market’s attention.
I think that as this business keeps expanding, Segro’s valuation will continue to rise over the coming years.
Finally, quite a few of our other holdings also just reported strong results, but have missed out on the upside so far due to the broader REIT market sell-off that happened in recent weeks.
All the following REITs beat expectations in at least some respect and/or hiked their full-year guidances:
NNN REIT (NNN)
W.P. Carey (WPC)
CubeSmart (CUBE)
Camden Property Trust (CPT)
Sila Realty Trust (SILA)
Armada Hoffler (AHH)
Macerich (MAC)
BSR REIT (HOM.U:CA)
We are working on more detailed updates on all these companies.
All of this just to say that Q3 is now shaping up to be stronger than we initially feared.
The other important news is that the Fed further reduced interest rates by another 25 basis points, marking the second cut in just two months.
This means that short-term rates are now in the high 3s.
Moreover, the debt market now expects interest rates to be cut by another 75-100 basis points within the next year, bringing interest rates to just 2.75% to 3%.
The reason why rates are being cut is simply that the labor market is rapidly weakening, which could spell trouble for the broader economy.
I think that AI has a lot to do with the latest layoff announcements, and as this becomes increasingly clear ot the market, more investors will also recognize just how strong a deflationary AI is going to be.
This should then pull long-term interest rates to lower levels as well, benefiting REITs. But even ignoring that, simply getting lower short-term rates should strongly benefit REIT valuations over the coming years.
That’s because it will influence capital flows. Right now, there is a record-breaking $7 trillion of capital comfortably sitting in money-market funds:
But as interest rates are cut down further, I expect some of this capital to gradually make its way back to higher-yielding options, including REITs, which will then push their share prices to higher levels.
It is the same reason why REITs crashed as short-term rates were hiked, but in reverse.
This correlation between REITs and short-term rates, of course, isn’t perfect, and we saw that in recent weeks as REITs dropped despite the Fed cutting interest rates. That’s because the market chose to focus instead on Q3 results, which increased fears of a near-term recession.
But over time, there has been a clear inverse correlation, with REITs rising as rates are cut, and vice versa. The market is volatile in the short run, and the recovery is not perfectly steady, but as rate cuts continue, we are confident that REIT share prices will also reflect that over time.
REITs are already up about 38% on average since rate cuts began in late 2023, and they have a lot more to give, given that REIT valuations are still at a near-decade low relative to the broader stock market (SPY).
And even if you don’t buy into the upside potential from rate cuts, you should still take some comfort in knowing that valuations are historically low, which, at the minimum, should provide a margin of safety in today’s highly uncertain environment.
Tech stocks are hot right now, but their extreme valuations make them speculative. REITs are less exciting and not getting much attention, but their businesses are far more resilient, owning cash-flowing real assets that are essential to our society, and trading at large discounts.
Similarly, REITs were discounted and overlooked heading into the dotcom crash, but they strongly recovered and were highly rewarding in the aftermath:
Could something similar play out over the coming years?
Only time will tell, but I sleep better at night knowing that my portfolio is not just betting on the potential bubble continuing to inflate, even as valuations seem stretched, and “The Big Short” Michael Burry is now betting his entire fund on the opposite.
With REITs, we are invested in resilient real assets that generate substantial cash flow and are priced conservatively. As interest rates continue to be cut, this should attract more investors, eventually resulting in higher valuations.
So despite the recent setback in Alexandria, Caesars, and others, we remain confident in our long-term thesis and will keep on accumulating more shares at steep discounts, while the market remains focused on near-term headwinds, forgetting about the bigger picture.
We also welcome the good news from our many holdings and will not hesitate to buy more of them as well if the market fails to reprice them accordingly.
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Analyst’s Disclosure: I/we have a beneficial long position in the shares of all companies held in the CORE PORTFOLIO, RETIREMENT PORTFOLIO, and INTERNATIONAL PORTFOLIO either through stock ownership, options, or other derivatives. We also own a position in FarmTogether. High Yield Landlord® (’HYL’) is managed by Leonberg Research, a subsidiary of Leonberg Capital. All rights are reserved. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. The newsletter is impersonal and subscribers/readers should not make any investment decision without conducting their own due diligence, and consulting their financial advisor about their specific situation. The information is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The opinions expressed are those of the publisher and are subject to change without notice. We are a team of five analysts, each contributing distinct perspectives. Nonetheless, Jussi Askola, the leader of the service, is responsible for making the final investment decisions and overseeing the portfolio. We do not always agree with each other, and an investment by Jussi should not be taken as an endorsement by other authors. Past performance is no guarantee of future results. Our portfolio performance data is provided by Interactive Brokers and believed to be accurate but its accuracy has not been audited and cannot be guaranteed. Our portfolio may not be perfectly comparable to the relevant index. It is more concentrated and may at times use margin and/or invest in companies that are not typically included in REIT indexes. Finally, High Yield Landlord is not a licensed securities dealer, broker, US investment adviser, or investment bank. We simply share research on the REIT sector.
