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  • Alex Pettee, CFA

FedEx Warning • Storage M&A • REIT Dividend Hikes

  • U.S. equity markets slid again Friday- capping off their worst week since June- after a FedEx profit warning and weak consumer confidence data added to concern over looming Fed rate hikes.

  • Diving more than 5% for the week and closing at its lowest level in nearly two months, the S&P 500 declined another 0.7% today while the tech-heavy Nasdaq 100 declined 0.6%.

  • Real estate equities were mixed today - but still among the laggards for the week - as the Equity REIT Index finished flat today with 10 of 19 property sectors in positive territory.

  • Package delivery giant FedEx (FDX) plunged more than 20% today after warning that it will likely miss its profit target, citing weakness in Asia and challenges in Europe, and expects conditions to weaken further in the quarter ahead.

  • Extra Space (EXR) announced a $590M acquisition of Storage Express, which owns 107 storage properties in Indiana, Ohio, Illinois, and Kentucky. Elsewhere, NewLake Capital hiked its dividend while Xenia Hotels resumed its dividend following its June 2020 suspension.

 

Real Estate Daily Recap

U.S. equity markets slid again Friday - capping off their worst week since June - after a profit warning from FedEx and weak consumer confidence data added to concern over looming Fed rate hikes next week. Diving more than 5% for the week and closing at its lowest level in nearly two months, the S&P 500 declined another 0.7% today while the tech-heavy Nasdaq 100 declined 0.6% to push its weekly losses to nearly 6%. Real estate equities were mixed today - but still among the laggards for the week - as the Equity REIT Index finished flat today with 10-of-19 property sectors in positive-territory while the Mortgage REIT Index finished fractionally higher.

Clashing with comments from Fed Chair Powell in late August referencing "strong" underlying economic momentum, package delivery giant FedEx (FDX) plunged more than 20% today after warning that it will likely miss its profit target, citing weakness in Asia and challenges in Europe, and expects conditions to weaken further in the quarter ahead amid weaker global volume. The warning follows another soft slate of economic data this week that led to downward revisions in several GDP forecasts that now project a third-straight quarter of GDP contraction for the first time since the 2008 Great Financial Crisis. Despite Michigan Consumer Sentiment data showing another monthly retreat in inflation expectations, the 10-Year Treasury Yield and 2-Year Treasury Yield each remained near fifteen-year highs today as traders currently price in an 80% probability of a 75 basis point rate. Crude Oil finished roughly flat while the US Dollar Index remained at 20-year highs.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Another day, another handful of REIT dividend hikes. Cannabis REIT NewLake Capital Partners (OTCQX:NLCP) hiked its quarterly dividend by 6% to $0.37/share, representing a forward yield of roughly 9.7%. Elsewhere, hotel REIT Xenia Hotels (XHR) resumed its dividend that had been suspended since July 2022, declaring a $0.10/share quarterly dividend, representing a forward yield of roughly 2.5%. We've now seen 106 REIT dividend hikes so far this year while six REITs have cut their dividends. As discussed this week in 100 REIT Dividend Hikes - our quarterly State of the REIT Nation Report - property-level fundamentals have been quite strong - and strengthening - for most property sectors in recent quarters despite the broader economic slowdown this year. Dividends per share rose by 15.1% in Q2 from last year, but total dividend payouts remain roughly 13% below pre-pandemic levels as many REITs have been exceedingly conservative in their dividend policies.

Storage: Extra Space (EXR) finished off by about 1% today after it announced a $590M acquisition of Storage Express, which owns 107 storage properties in Indiana, Ohio, Illinois, and Kentucky. The acquisition included all Storage Express assets, including trademarks, contracts, licenses, intellectual property and 14 future development sites. EXR also acquired a storage software operating platform dubbed E-Tracker, which supports Storage Express locations. The deal was funded partly by the issuance of $125.0M in operating partnership units, with the cash balance drawn from its credit facilities, the company said. As discussed in our recent Storage REIT report, acquisition and consolidation opportunities should remain plentiful over the next decade for these storage REITs following the late-2010s supply boom, and we have indeed seen acquisition activity ramp up over the past several quarters as these REITs acquired more than $13B in assets over the past year.

Casino: Today we published Casino REITs: Taking Some Chips Off the Table on the Income Builder Marketplace. The lone property sector in positive-territory this year, Casino REITs have defied macro headwinds much like their traditional net lease peers, benefiting from an upward valuation re-rating and institutional acceptance. Casino REITs have become a favorite for investors seeking inflation-hedged assets. VICI Properties (VICI) boasts inflation-linked escalators on 96% of its leases while Gaming & Leisure Properties (GLPI) benefits from indirect inflation hedges linked to tenant performance. The recent outperformance can be attributed to VICI’s inclusion in the S&P 500 in June following its merger with MGM Properties, becoming the fastest REIT to be included in the benchmark. For the critical Las Vegas market, robust leisure demand has fueled a near-full recovery in hotel occupancy despite still-weak convention-related demand, but we note that tenant operators aren't immune from the risks of a potentially prolonged recession.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs finished mostly higher today with residential mREITs advancing 0.9% while commercial mREITs finished fractionally higher. A handful of REITs held their dividends steady over the past 24 hours including Starwood Property (STWD), Blackstone Mortgage (BXMT), Broadmark Realty (BRMK), Lument Finance (LFT), AG Mortgage (MITT), Cherry Hill (CHMI), and BrightSpire Capital (BRSP). We've seen 13 mREITs increase their dividend this year and 4 dividend cuts.

Economic Data This Week

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.

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.

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