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  • Alex Pettee, CFA

Casino M&A • Inflation Cools • REIT Dividend Hikes

  • U.S. equity markets were little-changed Thursday but bonds posted a broad-based rally as interest rates dipped on cooler-than-expected PCE inflation data alongside disappointing jobless claims and manufacturing data.

  • Holding onto most of yesterday's rally and closing just below two-month highs, the S&P 500 slipped 0.1% today while the tech-heavy Nasdaq 100 finished higher by 0.1%.

  • Real estate equities were mixed today. Equity REITs slipped 0.3% while Mortgage REITs finished flat. Homebuilders continued their recent rebound as mortgage rates fell for a third-straight week.

  • Another cooler-than-expected inflation report sparked a robust bid for bonds across the credit and maturity curve today with the 10-Year Treasury Yield plunging by 17 basis points to close at 3.51% - the lowest close since September 21st.

  • VICI Properties (VICI) announced that it reached a $5.5B deal to acquire the remaining 49.9% share in the MGM Grand and Mandalay Bay from Blackstone (BX) at a 5.6% implied cap rate, giving VICI full ownership of the properties.

 

Income Builder Daily Recap

U.S. equity markets were little-changed Thursday but bonds posted a broad-based rally as interest rates dipped on cooler-than-expected PCE inflation data alongside disappointing jobless claims and manufacturing data. Hanging onto most of yesterday's rally and closing just below two-month highs, the S&P 500 slipped 0.1% today while the tech-heavy Nasdaq 100 finished higher by 0.1%. Real estate equities were mixed today with the Equity REIT Index slipping 0.3% with 5-of-18 property sectors in positive territory while the Mortgage REIT Index finished flat. Homebuilders continued their recent rebound as mortgage rates fell for a third-straight week with the 30-Year Fixed Rate mortgage averaging 6.49% for the week - down from the peak of 7.08%.

Another cooler-than-expected inflation report sparked a robust bid for bonds across the credit and maturity curve today with the 10-Year Treasury Yield plunging by 17 basis points to close at 3.51% - the lowest close since September 21st - while the US Dollar Index plunged to the lowest level since June. Alongside data showing that continuing jobless claims spiked to the highest level since February last week and Manufacturing PMI dipping to the lowest levels since May 2020, the Commerce Department reported that the Core PCE Index - the Fed's preferred measure of inflation - rose less than expected in October at a 4.98% annualized rate, consistent with CPI and PPI data reported earlier this month showing clear signs of cooling price pressures.


Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Casino: VICI Properties (VICI) announced that it reached a $5.5B deal to acquire the remaining 49.9% share in the MGM Grand Las Vegas and the Mandalay Bay Resort from Blackstone (BX), giving VICI full ownership of the properties. Under the terms of the deal, Blackstone will receive $1.27B in cash while VICI (VICI) will assume the private equity firm's share of roughly $3B in debt. The deal comes after a wave of investor redemptions have hit Blackstone's nontraded REIT platform in recent months, a sharp reversal in dynamics from 2021 when investor inflows prompted BREIT to acquire five public REITs last year at valuations that were, in some cases, 30-50% above the implied valuations today. VICI intends to fund the deal with cash on hand and proceeds from existing forward equity sale agreements. The transaction - which has an implied cap rate of 5.6% - is expected to be immediately accretive to AFFO/share and will generate annual rent of $310M next year and escalate at a fixed 2.0% rate through 2035 and up to 3.0% thereafter.

Data Center: Today we published Data Center REITs: Patience Pays Off on the Income Builder Marketplace which discussed our updated outlook and recent portfolio trades in our dividend-focused portfolios. Data Center REITs have been one of the best-performing property sectors over the past quarter as property-level fundamentals have strengthened despite an expected downshift in cloud-related spending. Ironically, just as Data Center REITs became a trendy “short” idea centered on a thesis of weak pricing power and competition from hyperscalers, rental rate trends have meaningfully improved. Competition from the hyperscale giants– Amazon, Microsoft, Google– has been a well-established risk. With negotiating power tilting back towards landlords, there appears to be enough economic value to be shared.


Another day, another wave of REIT dividend hikes. Net lease REIT Essential Properties (EPRT) hiked its quarterly dividend by 2% to $0.275/share while Healthcare REIT Universal Health Realty (UHT) hiked its quarterly dividend by 1% to 0.715/share. We've now seen 120 REITs raise their dividend this year - roughly matching the full-year record-high total from 2021. As noted in our State of the REIT Nation report last week, REIT payout ratio ratios remain below the long-term historical averages, implying that REITs have significant 'embedded' dividend growth that should be unlocked over the coming quarters - or will at least serve as a buffer to protect current payout levels if macroeconomic conditions take an unfavorable turn.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were mixed today with residential mREITs advancing 0.6% while commercial mREITs slipped 0.4%. Last week, we published Mortgage REITs: High Yields Are Fine, For Now. Mortgage REITs - which were left for dead amid a historically brutal year across fixed-income markets - have rebounded in recent weeks as earnings results were not as catastrophic as feared. Mortgage REITs are now outperforming Equity REITs for the year, and we continue to see value in a modest allocation towards higher-quality mREITs in a balanced income-focused real estate portfolio.

Economic Data This Week

The BLS Nonfarm Payrolls report on Friday rounds out a busy week of economic data. Economists are looking for job growth of roughly 200k in November - which would be the smallest gain since December 2020 - and for the unemployment rate to stay steady at 3.7%. 'Good news is bad news' will likely be the theme of these reports as investors and the Fed await the long-awaited cooldown in labor markets which has yet to fully materialize.

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.


This published commentary is for informational and educational purposes only. Nothing on this site nor any commentary published by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. This commentary is impersonal and should not be considered a recommendation that any particular security, portfolio of securities, or investment strategy is suitable for any specific individual, nor should it be viewed as a solicitation or offer for any advisory service offered by Hoya Capital Real Estate. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.


The views and opinions in all published commentary are as of the date of publication and are subject to change without notice. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Any market data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any outlook made in this commentary will be realized.


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