• U.S. equity markets snapped a two-day skid Thursday as strong AI-fueled earnings results from chip maker Nvidia offset a continued uptick in benchmark interest rates amid the ongoing debt ceiling stalemate.

• Following back-to-back declines of roughly 1%, the S&P 500 rebounded by 0.9% today, while the tech-heavy Nasdaq 100 rallied 2.4%. The Mid-Cap 400, Small-Cap 600, and Dow all finished lower.

• Higher rates pressured real estate equities, which were among the laggards for a second day despite a lift from technology REITs. The Equity REIT Index posted fractional declines today.

• Both data center REITs - Digital Realty (DLR) and Equinix (EQIX) - rallied more than 5% today after chip maker Nvidia (NVDA) reported blowout first-quarter results driven by strength in its data center business.

• American Tower (AMT) raised its quarterly dividend by 1% to $1.57/share, becoming the 52nd REIT to raise its dividend this year, offset by 16 REIT dividend reductions.

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Income Builder Daily Recap

U.S. equity markets snapped a two-day skid Thursday as strong AI-fueled earnings results from chip maker Nvidia offset a continued uptick in benchmark interest rates amid the ongoing debt ceiling stalemate.  Following back-to-back declines of roughly 1%, the S&P 500 rebounded by 0.9% today, while the tech-heavy Nasdaq 100 rallied 2.4%. The Mid-Cap 400, Small-Cap 600, and Dow all finished lower on the session. A relatively strong slate of economic data and concern over a potential technical default lifted the 2-Year Treasury Yield and 10-Year Yield to their highest levels since early March. Higher rates pressured real estate equities, which were among the laggards for a second day despite a lift from technology REITs. The Equity REIT Index posted fractional declines today, with 14-of-18 property sectors in negative territory, while the Mortgage REIT Index declined 2.2%.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Data Centers: Both data center REITs - Digital Realty (DLR) and Equinix (EQIX) - rallied more than 5% today after chip maker Nvidia (NVDA) reported blowout first-quarter results driven by strength in its data center business. Nvidia - which surged more than 20% today to bring its market cap to the cusp of $1 trillion - said that it is significantly increasing its supply of data center chips to meet "surging" demand and commented, "a trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process." In our REIT Earnings Recap, we noted that data center REITs have seen improved pricing power in recent quarters after a three-year stretch of lackluster rent growth. Equinix (EQIX) raised its full-year revenue and FFO outlook while also recording its strongest quarter of same-store revenue growth on record at 11%. Digital Realty (DLR) reported similarly strong pricing trends, with renewal rent spreads rising 4.5% - its strongest quarter since 2019.

Cell Tower: American Tower (AMT) raised its quarterly dividend by 1% to $1.57/share, becoming the 52nd REIT to raise its dividend this year compared to 16 REIT dividend reductions. Notably, the one-cent increase for the second quarter was below AMT's historical average increase of two cents. A trio of office REITs maintained their dividends despite speculation that cuts may be imminent. Brandywine Realty (BDN) maintained its quarterly dividend at $0.19/share, representing a dividend yield of 20.4%. Kilroy Realty (KRC) maintained its dividend at $0.54/share, representing a dividend yield of 8.0%. Douglas Emmett (DEI) maintained its dividend at $0.19/share, representing a dividend yield of 6.7%. Apartment REIT AvalonBay (AVB) and data center REIT Digital Realty (DLR) also held their dividends steady. 

Hotels: Yesterday, we published Hotel REITs: The Pandemic Is Over, Now What? Despite lingering recession concerns, hotel REITs are pacing for a second-straight year of outperformance after punishing early-pandemic declines, buoyed by steady post-pandemic operating improvement and the long-awaited return of dividends. The final pandemic-era travel restrictions were lifted last week with the ending of the vaccine mandate for foreign arrivals. International travel demand should provide a healthy tailwind over the coming quarters. Domestic travel recovered to 100% of pre-pandemic levels in early 2023 but has plateaued since February. Business and group demand has marginally improved, offsetting some moderation in leisure demand. The latest data from STR showed that the national average occupancy rate improved to 64.4% in April - just 1% below 2019 levels - but Average Daily Rates ("ADR") and Revenue Per Available Room ("RevPAR") growth slowed rather considerably. ADR rose by 3.4% in April - down from 19.1% in March. RevPAR increased 1.9%, down from 14.4% in March.

Additional Headlines from The Daily REITBeat on Income Builder

• Physicians Realty (DOC) closed on a $400 Million Term Loan maturing May 2028 along with a swap agreement to fix the variable component of the Term Loan at 3.59% for the duration of the borrowing

• Four Corners Property Trust (FCPT) announced an $85M deal to acquire up to 14 Darden restaurant properties located in Tennessee (7), Indiana (3), Kentucky (3), and Ohio (1), which will pay an initial cash rent of $5.35M with annual rent increases of 1.5% under a net lease with Darden

Mortgage REIT Daily Recap

Mortgage REITs finished lower for a second session today, with residential mREITs slipping 2.4% while commercial mREITs declined by 1.9%. Ellington Financial (EFC) declined by 2% after announcing that its estimated book value per share was $14.89 as of April 30, down about 1% from the $15.10/share at the end of Q1. EFC also maintained its quarterly dividend at $0.15/share, representing a dividend yield of 14.2%. As noted in our Earnings Recap, residential mREITs reported an average decline in BVPS of 1.9% in Q1, while commercial mREITs reported a 1.8% average decline. Within the residential mREIT sector, credit-focused mREITs fared better in Q1 - reporting a slight increase in their Book Value Per Share ("BVPS") while agency-focused REITs reported an average decline in their BVPS of about 5% in Q1. Dividend coverage was stronger for commercial mREITs with about 75% of commercial mREITs covering their dividend with Q1 adjusted EPS while just 50% of residential mREITs covered their dividend.

Economic Data This Week

The busy week of economic data concludes on Friday with the PCE Price Index - the Fed's preferred gauge of inflation - which is expected to show a continued moderation in price pressures. In the same report, we'll also be looking at Personal Income and Personal Spending data for April, a key read on the state of the U.S. consumer.

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