Alex Pettee, CFA
Mall REIT Dissolves • Solid Jobs Data • Risk-On Rotation
U.S. equity markets inched lower Friday- but held onto weekly gains- as solid employment data eased recession concerns, sparking a bid for risk assets while sending benchmark yields higher.
Holding onto weekly gains of nearly 2%, the S&P 500 finished lower by 0.1% today while the tech-heavy Nasdaq 100 advanced 0.1% to push its weekly gains to nearly 5%.
The "risk-on" pattern was evident across real estate equities as economically-sensitive sectors rebounded this week while defensive sectors lagged.
Troubled mall owner Seritage Growth Properties (SRG) surged 80% today after the company's board approved a plan to sell all of the company's assets and then dissolve.
Job growth impressed to the upside in June according to the latest nonfarm payrolls report released this morning as the U.S. economy added 372k jobs last month - higher than the 270k expected - a contrast to the recent weakness seen across most other economic datasets.
Income Builder Daily Recap
U.S. equity markets inched lower Friday - but held onto gains for the week - as solid employment data eased recession concerns, sparking a bid for risk assets while sending benchmark interest rates higher. Holding onto weekly gains of nearly 2%, the S&P 500 finished lower by 0.1% today while the tech-heavy Nasdaq 100 advanced 0.1% to push its weekly gains to nearly 5%. The "risk-on" pattern was evident across real estate equities as economically-sensitive sectors rebounded this week while defensive sectors lagged. The Equity REIT Index finished lower by 0.5% today - and 0.7% for the week - while the Mortgage REIT Index gained 0.1% to push its weekly gains to nearly 1%.
Job growth impressed to the upside in June according to the latest nonfarm payrolls report released this morning as the U.S. economy added 372k jobs last month - higher than the 270k expected - a contrast to the recent weakness seen across most other economic datasets. The benchmark 10-Year Treasury Yield climbed another 9 basis points today to 3.10% - above its July low of 2.78% but still well below its June high of 3.50%. Eight of the eleven GICS equity sectors finished lower today with Materials (XLB) stocks lagging on the downside, but homebuilders continued their recent outperformance as solid jobs data eased some concerns over the possibility of a "hard landing" in employment and housing markets.
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 published this weekend.
Real Estate Daily Recap
Best & Worst Performance Today Across the REIT Sector
Mall: Troubled mall owner Seritage Growth Properties (SRG) surged 80% today after the company's board approved a plan to sell all of the company's assets and then dissolve. The plan, if approved by shareholders, would distribute the net proceeds of the sale of 161 properties totaling about 19M SF to shareholders. SRG - which was formed in the mid-2010s to own former Sears and Kmart sites - has posted dismal returns since its public listing in 2015, encumbered by the strong headwinds faced by lower-tier malls. SRG technically revoked its REIT status last year as it began a strategic review. Mall transitions are few and far between in the U.S. and there have been few active buyers in recent years, but several potential bidders on SRG's properties include Simon Property (SPG), Brookfield (BAM), and Macerich (MAC).
Healthcare: Healthcare Realty (HR) and Healthcare Trust of America (HTA) provided details on financing plans for their upcoming merger. HR expects to fund the $1.1 billion special cash dividend - $4.82 per share - to HTA shareholders through a combination of asset sales and joint venture transactions at a blended cap rate of 4.8%. Proceeds are expected to be derived from properties under contract for $807 million and properties under letter-of-intent for $295 million. HR is also in active discussions with multiple counterparties regarding the sale of additional properties valued at more than $600 million at similar cap rates. HR also expects to form a new joint venture with CBRE Investment Management (“CBRE IM”), contributing four HTA properties while retaining a 20% interest in the joint venture.
Hotels: Today we published Hotel REITs: Summer of Revenge Travel. Despite recession-like levels of consumer confidence and surging transportation costs, U.S. consumers have continued to travel this summer at rates approaching pre-pandemic levels, powering Hotel RevPAR to fresh record highs. Skepticism over the sustainability of this momentum, however, has dragged hotel REITs lower by nearly 25% over the past month after being the top-performing property sector for much of 2022. Ashford (AHT) jumped 6% today after announcing yesterday afternoon that it expects its Q2 RevPAR to be 6% below that of the comparable pre-pandemic quarter in 2019. Braemar (BHR) advanced 3% after announcing that it expects its RevPAR to be 28% above its comparable 2019 level as surging nightly room rates on luxury hotels have offset lagging occupancy rates.
Mortgage REIT Daily Recap
Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were little-changed today with residential mREITs finishing lower by 0.1% while commercial mREITs gained 0.3%. Ellington Financial (EFC) and Ellington Residential (EARN) were among the leaders today after holding their monthly dividends steady with dividend yields of 11.8% and 12.4%, respectively. On another quiet day of newsflow, upside standouts included Angel Oak (AOMR) and AG Mortgage (MITT) while Invesco Mortgage (IVR) lagged after posting 20% gains in each of the past two weeks. The average residential mREIT now pays a dividend yield of roughly 13.3% while the average commercial mREIT pays a dividend yield of 9.2%.
REIT Preferreds & Capital Raising
Per the Income Builder Preferred Tracker available to Income Builder subscribers, REIT Preferred stocks finished higher by 1.11% today, on average. REIT Preferreds are lower by roughly 13% on a total return basis this year after ending 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now roughly 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of 6.97%.
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