Blackstone Redemptions • Mixed Jobs Data • REIT M&A

• U.S. equity markets finished modestly lower Friday- but held onto weekly gains- as investors parsed payrolls data showing resilient hiring in November but signs of weakness beneath the headline figure.
• Ending the week with cumulative gains of roughly 1%, the S&P 500 slipped 0.1% today while the tech-heavy Nasdaq 100 declined 0.4%. The Mid-Cap 400 and Dow finished higher.
• Real estate equities were mostly lower today- but posted another positive week. Equity REITs sipped 0.3% today with 8-of-18 property sectors in positive territory. Mortgage REITs declined 0.8%.
• The U.S. economy added 263k jobs in November - the slowest pace of hiring since December 2020 but still above expectations of roughly 200k. The BLS' household survey, however, showed a 138k decline in the employment level - a second-straight month of declines.
• Real estate asset manager Blackstone (BX) was in focus today after its massive $70B nontraded REIT platform - BREIT - announced that it has begun limiting withdrawals after a wave of redemption requests that exceeded its monthly and quarterly limits.

Income Builder Daily Recap

U.S. equity markets finished modestly lower Friday - but held onto weekly gains - as investors parsed payrolls data showing resilient hiring in November but signs of weakness beneath the headline figure. Ending the week with cumulative gains of roughly 1%, the S&P 500 slipped 0.1% today while the tech-heavy Nasdaq 100 declined 0.4%. The Mid-Cap 400 and Dow Jones Industrial Average, however, each finished slightly higher. Real estate equities were mostly lower today - but posted another positive week - as the Equity REIT Index sipped 0.3% today with 8-of-18 property sectors in positive territory while the Mortgage REIT Index declined 0.8%. Homebuilders and the broader Hoya Capital Housing Index declined today but were among the leaders for the week.

The Bureau of Labor Statistics reported this morning that the U.S. economy added 263k jobs in November - the slowest pace of hiring since December 2020 but still above expectations of roughly 200k - a relatively solid report following weak ADP and PMI employment data earlier in the week alongside another wave of announced corporate layoffs and hiring freezes earlier in the week. Strong job gains observed in the establishment survey, however, were once again at odds with the household survey in the same report - which is used to calculate the unemployment and labor force participation figures - which showed net job losses of 138k in November - a second straight month of declines in the employment level.

Yields initially jumped after the report before retreating later in the session with the 10-Year Treasury Yield closing the day roughly flat at 3.51% - the lowest close since September 21st - while the US Dollar Index dipped to the lowest level since June. 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.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Real estate asset manager Blackstone (BX) was in focus today after its massive $70B nontraded REIT platform - BREIT - announced that it has begun limiting withdrawals after a wave of redemption requests that exceeded its monthly and quarterly limits. An issue that we predicted in our State of the REIT Nation Report last month, BREIT reported that its Net Asset Value has increased 9.3% this year through September 30 - claiming roughly 40% outperformance over the public REIT indexes despite paying "top-dollar" to acquire a half-dozen public REITs over the past two years whose closest public REIT peers are trading lower by an average of 30% this year. Naturally, investors have seized on the opportunity to redeem shares at these premium valuations. We've discussed the risks of non-traded REIT ("NTR") space across many reports over the past half-decade and continue to watch the area for signs of stress given their typically-high leverage and sensitivity to investor fund flows - which we expect could eventually become an area that's "ripe for picking" for the more conservatively-managed REITs.

Casino: Realty Income (O) finished slightly higher today after it announced that it closed on its previously-announced $1.7 billion acquisition of the land and real estate assets of Encore Boston Harbor Resort and Casino from Wynn Resorts. Yesterday, VICI Properties (VICI) announced that it reached a $5.5B deal to acquire the remaining 49.9% share in the MGM Grand Las Vegas and the Mandalay Bay Resort from Blackstone (BX), giving VICI full ownership of the properties. Under the terms of the deal, Blackstone will receive $1.27B in cash while VICI will assume the private equity firm's share of roughly $3B in debt. VICI intends to fund the deal with cash on hand and proceeds from existing forward equity sale agreements. The transaction - which has an implied cap rate of 5.6% - is expected to be immediately accretive to AFFO/share and will generate annual rent of $310M next year and escalate at a fixed 2.0% rate through 2035 and up to 3.0% thereafter.

Hotels: Braemar Hotels (BHR) advanced 0.5% today after it announced that it completed the $270M acquisition of the 210-room Four Seasons Resort Scottsdale. Park Hotels (PK) slipped about 1.5% after it announced an amended and expanded unsecured credit facility with its total capacity rising to $950M from $900M and its maturity extended to December 2026 from December 2023. Recent TSA Checkpoint data has indicated that domestic travel throughput has remained quite strong into the critical Holiday travel season as a long-awaited recovery in business travel has offset a moderation in leisure demand in recent months.

Apartment: Nexpoint Residential (NXRT) announced the closing of 18-property mortgage refinancings for total gross proceeds of $807.6M - representing roughly 48% of the Company's total outstanding debt. Notably, NXRT's interest rate (SOFR + 155 bps) improved from prior terms. The company expects to use approximately $245 million of cash from the refinancing proceeds to pay down the outstanding principal balance of the Company's most expensive debt capital - its corporate credit facility.

Data Center: Yesterday we published Data Center REITs: Patience Pays Off on the Income Builder Marketplace which discussed our updated outlook and recent portfolio trades in our dividend-focused portfolios. Data Center REITs have been one of the best-performing property sectors over the past quarter as property-level fundamentals have strengthened despite an expected downshift in cloud-related spending. Ironically, just as Data Center REITs became a trendy “short” idea centered on a thesis of weak pricing power and competition from hyperscalers, rental rate trends have meaningfully improved. Competition from the hyperscale giants– Amazon, Microsoft, Google– has been a well-established risk. With negotiating power tilting back towards landlords, there appears to be enough economic value to be shared.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were mixed today with residential mREITs finishing fractionally higher while commercial mREITs slipped 0.8%. Last week, we published Mortgage REITs: High Yields Are Fine, For Now. Mortgage REITs - which were left for dead amid a historically brutal year across fixed-income markets - have rebounded in recent weeks as earnings results were not as catastrophic as feared. Mortgage REITs are now outperforming Equity REITs for the year, and we continue to see value in a modest allocation towards higher-quality mREITs in a balanced income-focused real estate portfolio.

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