Wells Fargo Ranks REITs "Unfavorable," Then Upgrades Six REITs And Raises Price Targets On More Than Two Dozen

"Real estate investment trust (REIT) performance has picked up recently as markets have started anticipating interest-rate cuts by the Federal Reserve (FED). However, lower interest rates by themselves are insufficient for outperformance. So we remain cautious about Real Estate relative to the other equity sectors and continue to rank it unfavorable." 

That's a quote from the Aug. 26 Wells Fargo Advisors' Investment Strategy, which might suggest a strong warning against REITs. Wells Fargo cites REITs' "poor relative strength for years" and forecasts that a decelerating U.S. economy into 2025 could be detrimental for real estate stocks.

Yet, the same week this Investment Strategy report was published, five separate Wells Fargo analysts upgraded a half dozen REITs and increased price targets on more than two dozen REITs.

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Confused? You should be. Granted, the Advisors' team is separate from the analysts' division. However, both work for the same bank, so some consistency with the analysis Wells Fargo publishes would be most helpful.

Take a look at some of the "unfavorable" REITs that were upgraded this week:

Kite Realty Group   

Kite Realty Group Trust KRG is an Indianapolis-based retail REIT with 178 open-air and mixed-use properties from Vermont to California, comprising 28 million square feet of gross leasable space. Its strip malls are mostly grocery store-anchored, and tenants include CVS, Fresh Market, Best Buy, Burlington Coat Factory, Ross Stores, and Costco. Kite Realty had its IPO in 2004.

On Aug. 28, Wells Fargo analyst Dori Kesten upgraded Kite Realty Group Trust from Underweight to an Equal-Weight and announced a $36 price target. Analyst Kesten believes that Kite Realty will record improved earnings growth in 2025.

On July 30, Kite Realty Group reported its Q2 earnings. FFO of $0.53 per share beat the consensus estimate of $0.50. Revenue of $212.434 million beat the forecast of $207.534 million and topped Q2 2023 revenue of $208.759 million.

Eastgroup Properties Inc 

Eastgroup Properties Inc 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 indexes. As of June 30, 97.4% of its properties were under lease.

On Aug. 28, Wells Fargo analyst Blaine Heck upgraded Eastgroup Properties from Equal-Weight to Overweight and raised the price target from $179 to $214. Several other analysts have upgraded or raised price targets on Eastgroup over the past month.

The news on Eastgroup Properties has been very positive lately:

On July 30, 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.

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 3.04%.

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Phillips Edison & Co

Phillips Edison & Co. Inc. PECO is a Cincinnati, OH-based Retail REIT that owns and operates grocery-anchored shopping centers. It was founded in 1991 and is a member of the S&P 600. Phillips has 286 properties in its portfolio and, as of August, had a 98% leased portfolio occupancy.

On Aug. 28, Wells Fargo analyst Tammi Fique upgraded Phillips Edison from Underweight to Equal-Weight and announced a $37 price target.

In recent news, on Aug. 8, Phillips Edison announced that S&P Global Ratings had upgraded its rating from BBB- with a stable outlook to BBB.

Wells Fargo also upgraded three other companies this week. On Aug. 26, analyst James Feldman upgraded Mid-America Apartment Communities Inc MAA from Equal-Weight to Overweight, Camden Property Trust CPT from Underweight to Equal-Weight, and American Homes 4 Rent Class A AMH from Equal Weight to Overweight.

In addition, the Wells Fargo analysts raised price targets on 25 REITs between Aug. 26 and August 28.

So, are REITs "unfavorable" and likely to continue to underperform as the Wells Fargo Investment Strategy report indicates, or are REITs performing so well that 25 deserve price target hikes and a half dozen upgrades from five Wells Fargo analysts? Investors deserve to have more consistent answers from the same source.

Better Yields Than Some REITs?

Not all great high-yielding investments exist in the public markets. 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. 

As long-term rates go down and short-term rates stay high, there’s a unique chance to invest in fix & flip loans before yields drop. Check out Benzinga's favorite high-yield offerings.