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  • Alex Pettee, CFA

BOJ Surprise • Yields Jump • Housing Data

  • U.S. equity markets snapped a four-day skid despite another jump in benchmark interest rates following a surprise rate hike from the Bank of Japan.

  • Rebounding from its lowest levels since early November but still on pace for a third-straight weekly decline, the S&P 500 gained 0.1% while the Nasdaq 100 finished lower for a fifth-session.

  • Real estate equities were mixed today with the Equity REIT Index declining 0.3% with 14-of-18 property sectors in negative territory, while the Mortgage REIT Index also finished lower by 0.3%.

  • Apple Hospitality (APLE) - which we own in the REIT Dividend Growth Portfolio - declared a supplemental special dividend of $0.08/share - the fourth hotel REIT to declare a special dividend over the past two weeks.

  • Housing Starts tumbled 16% from last year to a rate of 1.427M - the lowest levels in over two years - while Building Permits dipped 22% from last year to a rate of 1.342M - the lowest level since June 2020.

 

Income Builder Daily Recap

U.S. equity markets snapped a four-day skid despite another jump in benchmark interest rates following a surprise rate hike from the Bank of Japan. Rebounding from its lowest levels since early November but still on pace for a third-straight weekly decline, the S&P 500 gained 0.1% today while the tech-heavy Nasdaq 100 finished lower for a fifth-straight session. The Mid-Cap 400 and Small-Cap 600 each posted gains of 0.5%. The 10-Year Treasury Yield (US10Y) jumped 10 basis points for a second-straight day to close at 3.68% after dipping to three-month lows last week. Real estate equities were mixed today with the Equity REIT Index declining 0.3% with 14-of-18 property sectors in negative territory, while the Mortgage REIT Index also finished lower by 0.3%.

The surprise rate hike from the Bank of Japan - which raised its cap on its 10-Year bond to 0.50% from 0.25% - sparked renewed volatility in currency and sovereign bond markets and follows a wave of central bank monetary tightening actions over the past several weeks. Yield-sensitive segments of the equity markets were under pressure including Homebuilders, which slumped 2% on data showing a sharp decline in building permits in November. Census Bureau data showed that Housing Starts tumbled 16% from last year to a rate of 1.427 million last month - the lowest levels in over two years - amid ongoing pressure from the historic surge in mortgage rates this year. Building permits for future home construction dipped 22.4% from last year to a rate of 1.342 million units last month, the lowest level since June 2020.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Hotels: Apple Hospitality (APLE) - which we own in the REIT Dividend Growth Portfolio - declared a supplemental special dividend of $0.08/share - the fourth hotel REIT to declare a special dividend over the past two weeks. After the close today, Pebblebrook Hotels (PEB) provided a business update in which it downwardly revised most of its earnings metrics for Q4 citing "a negative impact from Hurricane Nicole and weaker business and leisure demand during the second half of November, which may relate to new seasonal patterns around holidays due to hybrid work." Recent TSA checkpoint data shows that domestic throughput has remained steady at around 95% of pre-pandemic levels since September as a slight uptick in business travel has offset a moderation in leisure travel demand in recent weeks.

Casino: Yesterday afternoon, VICI Properties (VICI) - which we own in the REIT Dividend Growth Portfolio - provided details on its triple-net lease agreement with Hard Rock International for its operations of the Mirage Hotel & Casino, which received regulatory approval last Friday. Under the terms of the agreement, the initial total annual rent under the lease with Hard Rock is $90.0M, with an initial term of 25 years plus three 10-year tenant renewal options. Rent under the lease will escalate annually by 2.0% for the first 10 years and will transition to a CPI-based formula in year 11. Last week in Casino REITs: Hold 'Em As Others Fold 'Em we discussed the inflation-hedging characteristics of VICI Properties and Gaming & Leisure's (GLPI) lease portfolio and these casino REITs' external growth prospects.

Additional Headlines from The Daily REITBeat on Income Builder

  • Chatham Lodging Trust (CLDT) increased commitments under its senior unsecured revolving credit facility by $45M, with a commitment from Royal Bank of Canada. The hotel real estate investment trust will have a total unsecured revolving credit facility of $260M with this latest commitment, apart from a new $90M term loan. The new revolving credit facility and term loan will mature in October 2027. The new debt commitments replace Chatham’s previous $250M senior unsecured credit facility scheduled to mature in 2023. Chatham plans to fully draw the $90M loan amount within six months to repay maturing debt.

  • Income Builder Members receive access to The Daily REITBeat, an institutional-quality daily note that keeps subscribers apprised of pertinent news, data, and trends specifically within the REIT industry.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were mostly-lower today with residential mREITs slipping 1.0% while commercial mREITs declined 0.9%. Angel Oak (AOMR) gained nearly 3% today after it reported that its book value per share ("BVPS") was $9.40 - down about 12% from the end of September - but not as weak as expectations. Ellington Financial (EFC) was among the laggards today held its monthly dividend steady at $0.15/share - representing a forward yield of 13.9% - and reported that its BVPS was $14.89 as of November 30, up 0.2% from October 31. A pair of mREITs trimmed their dividends over the past 24 hours. AG Mortgage (MITT) trimmed its quarterly dividend by about 14% to $0.18/share, representing a dividend yield of roughly 11.88%. Two Harbors (TWO) trimmed its quarterly dividend by about 12% to $0.60/share, representing a dividend yield of 15.0%. Invesco Mortgage (IVR) held its quarterly payout steady at $0.65/share - representing a yield of 20.6%.

Economic Data This Week

The state of the U.S. housing market remains in the spotlight in another jam-packed week of economic data before the Christmas holiday. On Wednesday, Existing Home Sales data is expected to dip to the lowest levels since 2014 excluding the pandemic shutdown months, but New Home Sales data on Friday is expected to stay around the 600k level as homebuilders have more proactively adjusted prices than existing owners. On Friday, we'll also see some important inflation data with the PCE Price Index for November - the Fed's preferred gauge of inflation - which is expected to show a moderation in price pressures to the lowest since late 2021.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

Hoya Capital Research & Index Innovations (“Hoya Capital”) is an affiliate of Hoya Capital Real Estate, a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations provides non-advisory services including market commentary, research, and index administration focused on publicly traded securities in the real estate industry.


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