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  • Alex Pettee, CFA

Inflation Cools • Casino M&A • Merry Christmas!

  • U.S. equity markets rebounded Friday ahead of the extended Christmas holiday weekend after a pair of closely-watched inflation gauges showed encouraging evidence of cooling price pressures.

  • Trimming its weekly losses to 0.1%, the S&P 500 rebounded 0.4% today while the tech-heavy Nasdaq 100 gained 0.2% - but both benchmarks were unable to avoid a third-straight week of declines.

  • Real estate equities were among the better performers again today with the Equity REIT Index gaining 0.9% with 16-of-18 property sectors in positive territory, while the Mortgage REIT Index slipped.

  • Following cooler-than-expected CPI and PPI inflation data in the prior two weeks, the Federal Reserve's preferred gauge of inflation - the Core PCE Index - exhibited similar cooling in November.

  • The busy month of M&A continued for VICI Properties (VICI), which announced this morning that it acquired two hotel-and-casino properties in Mississippi - the Fitz Casino & Hotel and the WaterView Casino & Hotel - for $293.4M from Foundation Gaming & Entertainment.

 

Income Builder Daily Recap

U.S. equity markets rebounded Friday ahead of the extended Christmas holiday weekend after a pair of closely-watched inflation gauges showed encouraging evidence of cooling price pressures. Trimming its weekly losses to 0.1%, the S&P 500 rebounded 0.4% today while the tech-heavy Nasdaq 100 gained 0.2%. While both large-cap benchmarks notched a third-straight week of declines, the Mid-Cap 400 and Small-Cap 600 each finished higher for the week. Real estate equities were among the better performers again today with the Equity REIT Index gaining 0.9% with 16-of-18 property sectors in positive territory, while the Mortgage REIT Index slipped 0.2%.

Despite the encouraging inflation news, benchmark interest rates across the yield curve marched higher with the 10-Year Treasury Yield (US10Y) rising 8 basis points to 3.75% while the 2-Year Treasury Yield (US2Y) climbed 5 basis points to 4.33% in response to a rebound in Crude Oil and commodities prices and concern over the potential inflationary impact of the $1.7 trillion omnibus federal spending package. Following cooler-than-expected CPI and PPI inflation data in the prior two weeks, the Federal Reserve's preferred gauge of inflation - the Core PCE Index - exhibited similar cooling in November with a 0.17% month-over-month increase, pulling the year-over-year increases down to 4.7% - the lowest since late 2021. The same report showed that Consumer Spending rose at the slowest annual rate in nearly two years.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Casino: The busy month of M&A continued for VICI Properties (VICI), which announced this morning that it acquired two hotel-and-casino properties in Mississippi - the Fitz Casino & Hotel and the WaterView Casino & Hotel - for $293.4M from Foundation Gaming & Entertainment. VICI's master lease with Foundation Gaming has an initial total annual rent of $24.25M, representing an implied acquisition capitalization rate of 8.3%, and an initial term of 15 years, with four five-year tenant renewal options. The rental rate escalates at a 1.0% rate in years 2-3 and at a rate equal to the greater of 1.5% or CPI (subject to a 3.0% cap) beginning in year 4. The rent coverage ratio in the first year after closing is expected to be ~2.0x and the tenants' obligations under the lease are guaranteed by the parent entity, Foundation Gaming.

Additional Headlines from The Daily REITBeat on Income Builder

  • Creative Media & Community Trust (NASDAQ:CMCT) announced that it will redeem all outstanding shares of its 5.5% series L Preferred Stock (CMCTP) on January 25th at 100% of its value of $28.37 per share, plus any accrued and unpaid dividends through Dec. 31.

  • Wheeler Real Estate (WHLR) announced the extension of its previously announced offer to exchange any and all outstanding shares of its 8.75% Series D Cumulative Convertible Preferred Stock - the distributions of which have been suspended since 2018 - for newly-issued 6.00% Subordinated Notes due 2027.

  • Ashford Hospitality (AHT) announced that it has successfully refinanced its mortgage loan for the 226-room Le Pavillon Hotel in New Orleans, Louisiana which had an initial maturity date of January 2023. The new, non-recourse loan totals $37.0 million, the same loan amount as the previous loan, and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions. The loan is interest only and provides for a floating interest rate of SOFR + 4.00% with a 0.50% SOFR floor.

  • 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 mostly-higher today with residential mREITs advancing 0.7% while commercial mREITs gained 0.4%. Arbor Realty (ABR) gained about 1% today after it announced that it's the lead financier of Emerald Empire's $600M acquisition of Pangea Properties' Chicago portfolio in one of the largest structured adjustable-rate mortgage loans of the year. The portfolio spans 7,500 units across more than 400 buildings - of which 97% are considered "affordable" at 60% of Area Median Income. Western Asset Mortgage (WMC) rallied another 7% today - adding to yesterday's gains of 5% - after it held its quarterly dividend steady at $0.40/share, representing a dividend yield of 18.6%. ACRES Realty (ACR) rebounded by 3% today following a nearly 20% plunge yesterday after it declared its preferred dividend but kept its common stock dividend suspended.

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. Merry Christmas!

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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