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  • Alex Pettee, CFA

Inflation Stays Hot • Special Dividend • Casino Deal

Summary

  • U.S. equity markets declined for the second-straight day Tuesday after inflation data showed that producer prices soared nearly 10% in November while the closely-watched two-day Federal Reserve meeting kicked off.

  • Following declines of 0.9% on Monday, the S&P 500 slipped another 0.7% today while the Mid-Cap 400 declined 0.4% and the Small-Cap 600 retreated 0.6%.

  • Mortgage REIT TPG RE Finance held its dividend steady but declared a special cash dividend of $0.07/share, one of roughly a dozen REITs that have announced special dividends this month.

  • MGM Resorts announced that it will sell the operations of The Mirage Hotel & Casino to Hard Rock International for $1.075B and real estate owner VICI Properties announced a new lease agreement with Hard Rock.

  • Ahead of tomorrow's FOMC Press Conference, the BLS reported this morning that producer prices rose at the fastest rate on record in November with the headline PPI Index soaring 9.6% from last year - significantly above the expected rise of 9.2%.

Income Builder Daily Recap

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U.S. equity markets declined for the second-straight day Tuesday after inflation data showed that producer prices soared nearly 10% in November while the closely-watched two-day Federal Reserve meeting kicked off today. Following declines of 0.9% on Monday, the S&P 500 slipped another 0.7% today while the Mid-Cap 400 declined 0.4% and the Small-Cap 600 retreated 0.6%. After leading the gains yesterday, real estate equities lagged on the day as the Equity REIT Index slipped 1.3% with 18-of-19 property sectors in negative territory while Mortgage REITs declined 2.0%.

Nine of the eleven GICS equity sectors were lower on the day with Financials (XLF) and Consumer Staples (XLP) as the lone sectors in positive-territory. The 10-Year Treasury Yield was little-changed today ahead of Wednesday's Fed press conference in which the FOMC is expected to announce a more aggressive stance towards combating inflation. Elsewhere, energy prices and Commodities (DJP) slumped today while the U.S. Dollar (UUP) gained ground as investors monitor economic restrictions in Europe and Asia.

The BLS reported this morning that producer prices rose at the fastest rate on record in November with the headline PPI Index soaring 9.6% from last year - significantly above the expected rise of 9.2%. Excluding food and energy, Core Producer Prices rose 0.5% for the month, bringing the annual gain to 7.7%, also the largest gain on record. This hotter-than-expected producer price data comes just a few days after the BLS reported that consumer prices rose at a nearly 7% rate in November - the highest annual increase since 1982.

Equity REIT & Homebuilder Daily Recap

Casino: MGM Resorts (MGM) announced that it reached a deal to sell the operations of The Mirage Hotel & Casino to Hard Rock International for $1.075B. VICI Properties (VICI) announced that it has agreed to enter into a new separate lease with Hard Rock related to the operations of the Mirage and will amend the Master Lease between VICI Properties and MGM Resorts. The lease between VICI and Hard Rock will have initial annual base rent of $90M, a base term of 25-years with three 10-year tenant renewal options, escalation of 2.0% per annum, and minimum cap-ex requirements of 1.0% of net revenue.

Net Lease: As part of our latest Net Lease REIT report exclusive for Income Builder members published yesterday afternoon, we developed additional metrics to measure the inflation-hedging characteristics of particular REITs and of real estate property sectors. Our new “Inflation Hedge Factor” metric uses a similar calculation as our Economic Sensitivity and Interest Rate Sensitivity metrics but utilizes an index of long-term inflation expectations as the benchmark. We also added the comparable metrics for Stocks (MDY) and Bonds (TLT) which provide context and illustrate how REITs are “part equity, part bond” with characteristics that blend features of both, underscoring their unique value in a balanced investment portfolio.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs declined 1.6% today while commercial mREITs slipped 1.9%. This afternoon, TPG RE Finance (TRTX) held its quarterly dividend steady at $0.24/share, and also declared a special cash dividend of $0.07/share to meet minimum REIT distribution requirements. Yesterday afternoon, New York Mortgage Trust (NYMT) held its dividend steady at $0.10 per quarter. The average residential mREIT now pays a dividend yield of 9.73% while the average commercial mREIT pays a dividend yield of 6.71%.

REIT Preferreds & Capital Raising

Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were lower by 0.38% today and are now higher by 7.87% on a price return basis and roughly 14% on a total return basis. Sachem Capital (SACH) announced today that it will issue a new exchange-listed bonds. SACH currently has a suite of three "baby bonds" which trade at an average current yield of roughly 7.0%. The Notes are expected to be listed on the NYSE American under the trading symbol “SCCD.”


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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.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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