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  • Alex Pettee, CFA

Stocks Slump • REIT Proxy Fight • Homebuilder Sentiment

  • U.S. equity markets declined for a fourth-straight session Monday- extending their post-Fed slump- while bond yields rebounded amid lingering uncertainty of a Fed pivot and renewed COVID concerns in China.

  • Closing at its lowest levels since early November and pacing for a third-straight weekly decline, the S&P 500 declined 1.0% today while the tech-heavy Nasdaq 100 fell 1.3%.

  • Real estate equities were also broadly lower today with the Equity REIT Index declining 1.3% with 17-of-18 property sectors in negative territory, but Mortgage REITs advanced 0.1%.

  • Several weeks after China began to relax some of its "COVID-zero" policies, reports of surging case counts in Beijing have sparked renewed uncertainty over the outlook for supply chains in the U.S. and broader global economic demand.

  • Global Net Lease (GNL) and Necessity Retail REIT (RTL) were in focus today after activist firm Blackwells Capital advanced an ongoing proxy battle by filing a lawsuit against the two REITs - both externally managed by AR Global - after the REITs rejected the firm's director candidate nominations.

 

Income Builder Daily Recap

U.S. equity markets declined for a fourth-straight session Monday - extending their post-Fed slump - while bond yields rebounded amid lingering uncertainty of a Fed pivot and renewed COVID concerns in China. Closing at its lowest levels since early November and pacing for a third-straight weekly decline, the S&P 500 declined 1.0% today - once again beaching the "bear market" threshold of a 20% decline - while the tech-heavy Nasdaq 100 fell 1.3% to push its drawdown to over 31% from its highs late last year. Real estate equities were also broadly lower today with the Equity REIT Index declining 1.3% with 17-of-18 property sectors in negative territory, but the Mortgage REIT Index finished higher by 0.1%.

Several weeks after China began to relax some of its "COVID-zero" policies, reports of surging case counts in Beijing have sparked renewed uncertainty over the outlook for supply chains in the U.S. and broader global economic demand. Commodities (DJP) prices dipped another 1% today - now back on the cusp of the lows for the year - despite a 2% rebound in Crude Oil prices today. The 10-Year Treasury Yield (US10Y) jumped 10 basis points today back up to 3.58% after dipping to three-month lows last week after the cooler-than-expected CPI report. All eleven GICS equity sectors finished lower on the session. Homebuilders declined 2% following data showing that Homebuilder Sentiment dipped for a 12th straight month to the lowest levels in a decade - excluding the brief "shutdown" dip in April 2020.

The state of the U.S. housing market remains in the spotlight in another jam-packed week of economic data before the Christmas holiday. On Tuesday, we'll see Housing Starts and Building Permits data which is expected to show a further pull-back in home construction activity to levels below that of late 2019. On Wednesday, Existing Home Sales data is expected to dip to the lowest levels since 2014 excluding the pandemic shutdown months, but New Home Sales data on Friday is expected to stay around the 600k level as homebuilders have more proactively adjusted prices than existing owners. On Friday, we'll also see some important inflation data with the PCE Price Index for November - the Fed's preferred gauge of inflation - which is expected to show a moderation in price pressures to the lowest since late 2021.


Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector


Net Lease: Global Net Lease (GNL) and Necessity Retail REIT (RTL) were in focus today after activist firm Blackwells Capital advanced an ongoing proxy battle by filing a lawsuit against the two REITs - both externally managed by AR Global - after the REITs rejected the firm's director candidate nominations. Blackwells - one of the largest shareholders in GNL - launched a proxy battle earlier this year proposing to terminate the external management agreement with AR Global, citing its relatively high cost structure and potential conflicts of interest. Blackwells alleges that AR Global is attempting to use amendments to the bylaws in July 220 to "prevent stockholders from voting for Blackwells’ two qualified nominees who would improve governance, hold the external manager and the company accountable, and support efforts to maximize value for stockholders." In addition to GNL and RTL, AR Global is also the external advisor to New York City REIT (NYC) and Healthcare Trust (HTIA). Last week we published Net Lease REITs: Calling The Fed's Bluff which discussed recent developments and our updated outlook on the net lease sector.

Casino: This afternoon, VICI Properties (VICI) provided details on its triple-net lease agreement with Hard Rock International for its operations of the Mirage Hotel & Casino, which received regulatory approval last Friday. Under terms of the agreement, the initial total annual rent under the lease with Hard Rock is $90.0M, with an initial term of 25 years plus three 10-year tenant renewal options. Rent under the lease will escalate annually by 2.0% for the first 10 years and will transition to a CPI-based formula in year 11. Last week in Casino REITs: Hold 'Em As Others Fold 'Em we discussed the inflation-hedging characteristics of VICI Properties and Gaming & Leisure's (GLPI) lease portfolio and these casino REITs' external growth prospects.

Additional Headlines from The Daily REITBeat on Income Builder

  • CareTrust REIT (CTRE) announced that it has renewed its unsecured revolving credit facility and extended the maturity date to February 2027. The amended unsecured revolver and continued unsecured term loan have grid-based pricing of adjusted SOFR plus 110-155bps and SOFR plus 150-220bps, respectively.

  • Creative Media & Community Trust (CMCT) announced that it has entered into a new $206 million secured credit facility that matures in December 2025 with two one-year extension options and replaces the company's prior credit facility that was set to mature in October 2023.

  • 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 mixed today with residential mREITs advancing 0.4% while commercial mREITs declined 0.2%. Rithm Capital (RITM) rebounded 7% today following a seemingly unexplained late-session selloff of a similar magnitude last Friday. This morning, Franklin BSP Realty (FBRT) held its quarterly dividend steady at $0.355/share - representing a forward yield of 10.6% - while this afternoon, Invesco Mortgage (IVR) held its quarterly payout steady at $0.65/share - representing a forward yield of 20.6%. Last month, we published Mortgage REITs: High Yields Are Fine, For Now which noted that despite paying average dividend yields in the mid-teens, the majority of mREITs have been able to cover their dividends but we flagged a handful of mREITs with payout ratios above 100% of EPS.

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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