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  • Alex Pettee, CFA

Fed In Focus • Apartment Bids • Stocks Rebound

  • U.S. equity markets rallied Monday- rebounding after its worst-week since mid-September- ahead of a critical week of inflation data and central bank policy decisions beginning with the CPI report tomorrow.

  • Rebounding from declines of nearly 3.5% last week, the S&P 500 advanced 1.4% today while the Mid-Cap 400 and Small-Cap 600 each gained roughly 1%.

  • Real estate equities were broadly-higher as well led by the more pro-cyclical property sectors. The Equity REIT Index advanced 0.8% today with 16-of-18 property sectors higher while Mortgage REITs gained 0.5%.

  • A NY Fed survey showed that consumers' inflation expectations have cooled significantly in recent weeks with respondents seeing one-year inflation at a 5.2% pace - the lowest since August 2021.

  • Veris Residential (VRE) rallied after receiving two additional buyout offers from Kushner Companies, which proposed an all-cash deal at $17.50/share last Thursday and upped the proposal to $18.50 on Sunday following an initial unsolicited offer back in October at $16.00/share.

 

Income Builder Daily Recap

U.S. equity markets rallied Monday - rebounding after its worst week since mid-September - ahead of a critical week of inflation data and central bank policy decisions beginning with the CPI report on Tuesday morning. Rebounding from declines of nearly 3.5% last week, the S&P 500 advanced 1.4% today while the Mid-Cap 400 and Small-Cap 600 each gained roughly 1%. Real estate equities were broadly-higher as well led by the more pro-cyclical property sectors as the Equity REIT Index advanced 0.8% today with 16-of-18 property sectors in positive-territory while the Mortgage REIT Index finished higher by 0.5%. Homebuilders gained nearly 2%.

The critical week of inflation data started on an encouraging note with the NY Fed's Survey of Consumer Expectations' showing that consumers' inflation expectations have cooled significantly in recent weeks with respondents seeing one-year inflation at a 5.2% pace - the lowest since August 2021. Notably, the survey also showed that home price growth expectations dropped to 1.0% - the lowest since May 2020 - but household income is projected to grow 4.5% - the highest since at least 2013. After dipping to three-month lows early last week, the 10-Year Treasury Yield climbed to 3.61% today while Crude Oil rebounded by 2.5% following declines of nearly 10% last week. Led by Energy (XLE) stocks, all eleven GICS equity sectors finished higher on the day.


It'll be another jam-packed week of economic data with the main event coming on Wednesday with the FOMC Interest Rate Decision in which the Fed is widely expected to raise rates by 50 basis points to bring the Fed Funds rate to a 4.50% upper-bound. Notably, market pricing indicates expectations of the terminal rate peaking at 5.25% next June. Before the Fed meeting on Tuesday, we'll see the Consumer Price Index for November which investors - and the Fed - are hoping to show that the fastest pace of year-over-year increases is finally behind us. The headline CPI is expected to moderate to a 7.3% year-over-year rate while the Core CPI is expected to decelerate to 6.1%. Importantly, gasoline prices averaged $3.69 nationally in November - down about 3% from the prior month. On Thursday, we'll also see Retail Sales data covering the early holiday shopping season which is expected to show a slight decline in seasonally-adjusted spending from the prior month.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector


Apartment: Veris Residential (VRE) rallied nearly 3% today after it received two additional buyout offers from Kushner Companies, which proposed an all-cash deal at $17.50/share last Thursday and upped the proposal to $18.50 on Sunday - up from the initial unsolicited offer back in October at $16.00/share. Veris announced that its Board rejected both subsequent proposals and published its letter sent to Kushner Companies which noted that it believes that the proposed takeout deal - roughly 50% above its price before Kushner's initial bid - "undervalues" Veris. The letter did, however, state that the Board is open to engaging in "serious, constructive, and direct negotiations." Veris - formerly known as Mack Cali - is nearing the completion of its transition from an office REIT to a pure-play multifamily REIT and now owns a portfolio of comprised of roughly 7,700 units - primarily in the NYC metro area.

Casino: Today, we published Casino REITs: Playing Offense As Peers Fold on the Income Builder Marketplace which discusses our updated outlook on the sector and recent portfolio trades. The Las Vegas Convention and Visitor Authority reported last month that total visitor traffic to Las Vegas returned to pre-pandemic record-highs in October, defying a broader moderation in leisure travel seen across most other major markets since late Summer. Critically, convention attendance exceeded pre-pandemic levels in October for the first time while Vegas hotels recorded total revenues that were 50% above October 2019 levels. Regional casinos recorded Gross Gaming Revenues that were 14% above 2019-levels while Vegas casinos recorded GGRs that were 31% higher than 2019 – gains that have importantly come alongside – and not despite - the growing popularity of iGaming and sports betting.


Office: Vornado (VNO) gained more than 2% today after it announced last Friday afternoon a series of deals with Rudin and Citadel. Citadel will master lease Vornado’s 350 Park Avenue office building (585,000 square feet) on an “as is” basis for ten years, with an initial annual net rent of $36 million, retroactive to June 15, 2022. Citadel will also master lease Rudin’s adjacent property at 40 East 52nd Street (390,000 square feet). In addition, Vornado entered into a joint venture with Rudin to purchase 39 East 51st Street for $40 million and will combine that property with 350 Park Avenue and 40 East 52nd Street to "create a premier development site" with a number of development options detailed in the press release. Last week we noted that recent data from Kastle Systems shows that average office utilization rates remain below 50% of pre-pandemic levels with coastal urban markets continuing to lag.

Additional Headlines from The Daily REITBeat on Income Builder

  • BDN announced that on December 6, 2022, its Board of Trustees appointed Joan Lau, PhD as a Trustee of the Board, effective February 1, 2023, to serve until its 2023 annual meeting of shareholders and until her successor is elected and qualified and concurrent with her appointment to the Board, Ms. Lau was appointed to the Audit Committee of our Board

  • STOR announced that its stockholders approved the acquisition of the Company by affiliates of GIC, a global institutional investor, and funds managed by Oak Street, a Division of Blue Owl and noted that the merger is expected to close in the first quarter of 2023 where holders will receive $32.25/share in cash

  • WPC announced the appointment of Elisabeth Stheeman to its Board of Directors, effective immediately noting that Ms. Stheeman will serve as a member of both the Investment and Nominating & Corporate Governance Committees

  • 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 mixed today with residential mREITs slipping 0.6% while commercial mREITs advanced 0.6%. Last month, 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.

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.


Readers should understand that investing involves risk and loss of principal is possible. Investments in real estate companies and/or housing industry companies involve unique risks, as do investments in ETFs. The information presented does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes.


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