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  • Alex Pettee, CFA

China Unrest • REIT M&A • Black Friday Spending

  • U.S. equity markets finished broadly lower Monday as investors monitored protests in China over COVID-zero policies, holiday spending data, and Fed commentary ahead of a critical week of employment data.

  • Retreating from its highest closing level in two months set last week, the S&P 500 slipped 1.5% today while the Mid-Cap 400 fell 1.9% and the Small-Cap 600 dipped 2.3%.

  • Real estate equities were broadly lower as well today with the Equity REIT Index declining 2.7% with all 18 property sectors in negative territory while the Mortgage REIT Index slipped 1.7%.

  • INDUS Realty (INDT) rallied nearly 12% after Centerbridge Partners and GIC Real Estate proposed to acquire the industrial REIT for $65.00 per share, a 13% premium to INDUS stock's closing price of $57.28 on Friday.

  • Preliminary holiday spending and foot traffic data showed continued resilience in U.S. consumer spending despite the broader cooldown. In-store foot traffic was up by about 5% year-over-year on Black Friday, but traffic at indoor malls was more muted than at strip centers.

 

Income Builder Daily Recap

U.S. equity markets finished broadly lower Monday as investors monitored protests in China over COVID-zero policies, holiday spending data, and hawkish Fed commentary ahead of a critical week of employment data. Retreating from its highest closing level in two months set last week, the S&P 500 slipped 1.5% today while the Mid-Cap 400 fell 1.9% and the Small-Cap 600 dipped 2.3%. The 10-Year Treasury Yield was little-changed at 3.70%. Real estate equities were broadly lower as well today with the Equity REIT Index declining 2.7% with all 18 property sectors in negative territory while the Mortgage REIT Index slipped 1.7% and Homebuilders declined 1.3%.

Employment data and inflation data highlight another critical week of economic data in the week ahead headlined by JOLTS and ADP Payrolls data on Wednesday, Jobless Claims data on Thursday and the BLS Nonfarm Payrolls report on Friday. 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. On Thursday, we'll also see the PCE Price Index - the Fed's preferred gauge of inflation - which is expected to show similar trends of moderating price pressures as seen in the CPI and PPI reports in the prior week. We'll also see housing market data on Tuesday via the Case Shiller and the FHFA Home Price Index, each of which is expected to show a month-over-month decline in home prices for a third straight month.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector


Industrial: INDUS Realty (INDT) rallied nearly 12% after Centerbridge Partners and GIC Real Estate proposed to acquire the industrial REIT for $65.00 per share, a 13% premium to INDUS stock's closing price of $57.28 on Friday. INDUS - previously known as Griffin Industrial Realty before its REIT conversion back in 2021 - owns 42 industrial/logistics buildings aggregating 6.1 million square feet in Connecticut, Pennsylvania, North Carolina, South Carolina, and Florida. INDUS' board said it will review the proposal "to determine the best path forward" that "maximized value for all of the company's shareholders." Centerbridge currently owns approximately 15% of the Company’s common stock. For GIC, the deal would be its second major acquisition of the past quarter following its $14B takeover of net lease REIT Store Capital (STOR) back in September.


Mall: This afternoon, we'll publish an updated report on the mall REIT sector on the Income Builder Marketplace which will analyze preliminary holiday spending and foot traffic data from the critical Black Friday weekend which generally showed continued resilience in U.S. consumer spending despite the broader cooldown in economic growth and recessionary levels of consumer confidence. Per data from Sensormatic and RetailNext, total in-store foot traffic was up by about 5% year-over-year on Black Friday, but traffic at indoor malls was more muted than at strip centers and other non-mall locations. Mastercard reported that in-store sales were up 12% from last year while online sales rose 14%, while other firms have seen more muted sales growth including Adobe, which reported online sales growth of 2.3%.


Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were also broadly lower with residential mREITs slipping 1.5% while commercial mREITs declined 1.7%. On a slow day of newsflow in the mREIT space, upside leaders included Western Asset (WMC) and Angel Oak (AOMR) while NexPoint Real Estate (NREF) and Sachem Capital (SACH) lagged. After the close today, iStar (STAR) announced the finalized amounts of the special dividend related to its acquisition of Safehold (SAFE) payable to SAFE's shareholders valued at approximately $190 million.


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. Despite paying average dividend yields in the mid-teens, the majority of mREITs were able to cover their dividends as improved earnings power from wider investment spreads offset book value declines, but we flagged a handful of mREITs with payout ratios above 100% of EPS.


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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