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  • Alex Pettee, CFA

Fed In Focus • Home Sales Slip • Hotel Recovery

  • U.S. equity markets rebounded Friday- but ended the week with modest declines- as investors assessed hawkish Fed commentary and lackluster economic data including a ninth-straight monthly decline in home sales.

  • Recovering after a two-day decline, the S&P 500 advanced 0.5% today- trimming its weekly decline to 0.6%- while the tech-heavy Nasdaq finished flat today to end the week lower by 1.1%.

  • Real estate equities were among the leaders today with the Equity REIT Index advancing 1.2% with 17-of-18 property sectors in positive territory while the Mortgage REIT Index gained 0.6%.

  • The lackluster week of economic data continued this morning with a weaker-than-expected reading on the Conference Board's Leading Economic Index, which fell for an eighth straight month in October.

  • Existing Home Sales declined for a ninth-straight month in October, dipping 5.9% from the prior month to a seasonally adjusted annual rate of 4.43 million. Supply levels remain near historically low levels, however, helping to buoy home values amid pressure from higher rates.

 

Income Builder Daily Recap

U.S. equity markets rebounded Friday - but still ended the week with modest declines - as investors assessed hawkish Federal Reserve commentary and lackluster economic data including a ninth-straight monthly decline in home sales. Rebounding from a two-day decline, the S&P 500 advanced 0.5% today - trimming its weekly decline to 0.6% - while the tech-heavy Nasdaq 100 finished flat today to end the week lower by 1.1%. The 10-Year Treasury Yield climbed 4 basis points to close the week at 3.82% - essentially unchanged from the prior week while the 10-2 Yield Curve remained near its deepest inversion since 1982. Real estate equities were among the leaders today with the Equity REIT Index advancing 1.2% with 17-of-18 property sectors in positive territory while the Mortgage REIT Index gained 0.6%.

The lackluster week of economic data continued this morning with a weaker-than-expected reading on the Conference Board's Leading Economic Index, which fell for an eighth straight month in October which CB noted: "reflects consumers' worsening outlook amid high inflation and rising interest rates, as well as declining prospects for housing construction and manufacturing." On that note, the NAR reported this morning that Existing Home Sales declined for a ninth-straight month in October, dipping 5.9% from the prior month to a seasonally adjusted annual rate of 4.43 million - the slowest sales pace since 2011 excluding the brief dip during the pandemic shutdown. Helping to offset the downward pressure on prices, however, is the still-tight inventory levels that remain near historic lows. Inventory levels represented just 3.3 months of supply even at the reduced sales rate.

We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook this weekend.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Hotel: Xenia Hotels (XHR) rallied nearly 4% today after announcing an expanded share buyback program, increasing the total repurchase authorization to $173M. Elsewhere, Apple Hospitality (APLE) - which we own in the REIT Dividend Growth Portfolio - advanced more than 3% after holding its monthly dividend steady at $0.08/share, representing a forward yield of nearly 6% - the highest in the hotel REIT sector. Recent TSA Checkpoint data has indicated that domestic travel throughput has remained quite strong into the critical Holiday travel season as a recovery in business travel has offset a moderation in leisure demand in recent months.

Today, we published our State of the REIT Nation Report on the Income Builder Marketplace which analyzes high-level commercial real estate fundamentals through the recently-released NAREIT T-Tracker data. Of note, private real estate markets are finally "catching-up" to reality of sharply higher interest rates which have been reflected in public real estate markets for several quarters. Green Street Advisors' data shows that private-market values of commercial real estate properties have dipped nearly 13% over the past six months after a historically sharp 8% decline in October alone. Due to conservative balance sheet management over the past decade, REITs have been able to "hunker down" during this period of rising rates - avoiding the type of dilutive and high-cost capital raises that were necessary during the Financial Crisis. Obscured by the macro narrative, REIT property-level fundamentals have remained quite strong in recent quarters.

Last Friday we published our REIT Earnings Recap: Rents Paid, Dividends Raised. Nearly 200 REITs and a dozen homebuilders have reported third-quarter earnings results over the past three weeks, providing critical information on the state of the U.S. real estate industry. REIT earnings season was surprisingly strong across nearly all property sectors. Of the REITs that provide guidance, nearly two-thirds raised their full-year FFO outlook alongside another two dozen dividend hikes. During third-quarter earnings season, the Equity REIT Index outperformed the broader S&P 500 by nearly 10 percentage points while Mortgage REITs outperformed by over 15 percentage points. Earnings results from Shopping Center, Industrial, and Net Lease REITs were most impressive - accounting for exactly half of the 58 guidance hikes. Residential and technology REIT results were more hit-and-miss - accounting for half of the 14 downward guidance revisions. Read the full report here.

Mortgage REIT Daily Recap

Yesterday 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.

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs rebounded today with residential mREITs advancing 0.2% while commercial mREITs gained 1.1%. Upside standouts today included Granite Point (GPMT), Apollo Commercial (ARI), and Arbor Realty (ABR).

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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