Fed Goes Quiet • Hotel Updates • Stocks Rebound

• U.S. equity markets rebounded Friday - snapping a three-day losing streak - as Fed officials struck a less hawkish tone entering the "quiet period" before its February rate hike decision.
• Trimming its weekly declines to under 1%, the S&P 500 advanced 1.8% today while the tech-heavy Nasdaq 100 rallied 2.7%, buoyed by strong results from streaming giant Netflix.
• Homebuilders rebound after Existing Home Sales data wasn't as soft as feared in December as interest rates retreated from multi-decade highs. Equity REITs gained 1.2% while Mortgage REITs rallied 1.5%.
• Pebblebrook (PEB) rallied 4% after providing a business update noting that its revenue and FFO metrics in Q4 are not expected to be as soft as previously forecast in mid-December.
• Travel data firm STR reported today that U.S. hotels recorded a 14.8% increase in Revenue Per Available Room above 2019 levels in December - capping off the best year on record for the hotel industry.

Income Builder Daily Recap

U.S. equity markets rebounded Friday - snapping a three-day losing streak - as Fed officials struck a less hawkish tone entering the "quiet period" before its February rate hike decision. Trimming its weekly declines to under 1%, the S&P 500 advanced 1.8% today while the tech-heavy Nasdaq 100 rallied 2.7%, buoyed by strong results from streaming giant Netflix. Real estate equities were broadly-higher today as well with the Equity REIT Index posting gains of 1.2% with 16-of-18 property sectors in positive territory while the Mortgage REIT Index advanced 1.5%. Homebuilders and the broader Hoya Capital Housing Index continued their strong start to 2023 after Existing Home Sales data wasn't as soft as expected in December.

Following several days of hawkish central bank rhetoric, a handful of Fed officials expressed a more modest tone on the final day before the Fed's blackout period, highlighted by remarks from Fed Governor Waller, who said policy looks "pretty close" to "sufficiently restrictive" levels. The 10-Year Treasury Yield rebounded from three-month lows set earlier in the week while the US Dollar Index edged higher. Crude Oil prices pushed back into positive territory for the week - closing at the highest levels since early December. All eleven GICS equity sectors finished higher on the day, but 8-of-11 were lower for the week.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Hotels: Pebblebrook (PEB) rallied 4% after providing a business update noting that its revenue and FFO metrics in Q4 are not expected to be as soft as previously forecast in mid-December. For the fourth quarter, PEB's Revenue Per Available Room ("RevPAR") was 8% below its 2019 pre-pandemic comparable level as an 18% relative increase in Average Daily Rates was offset by a 22% relative decline in occupancy rates. By comparison, PEB's third-quarter RevPAR was 1% above the pre-pandemic comparable - a deceleration that PEB attributed to weather-related impacts. PEB's weak fourth quarter came amid an otherwise strong period for the broader leisure industry. Four of the seven hotel REITs that have provided preliminary fourth-quarter results reported better RevPAR comparables in Q4 than in Q3.

STR reported today that the national average RevPAR was 14.8% above 2019-levels in December - capping off the best year on record for both RevPAR and Average Daily Rates. Higher room rates drove the improved operating performance as STR noted that despite climbing back above the 60% mark, occupancy levels remained about 5% below the pre-pandemic comparable for the full year. Tampa registered the highest growth in RevPAR (+25.2%) while the steepest RevPAR deficit was in San Francisco (-33.4%). Higher-frequency data via the TSA Checkpoint statistics show that despite the broader recession concerns, the new year is off to a strong start with January on pace to be the first month with throughput levels above that of 2019.

Additional Headlines from The Daily REITBeat on Income Builder

• UMH Properties (UMH) closed on the acquisition of a manufactured home community located in Albany, GA for a total purchase price of $3.65M.
• Fitch Ratings affirmed its “BBB-” credit rating for Host Hotel (HST) and revised its outlook to positive from stable.
• Whitestone REIT (WSR) received an investment grade issuer credit rating from Kroll Bond Rating Agency of BBB- with Stable Outlook.
• Morningstar downgraded Prologis (PLD) to Hold from Buy.
• JMP downgraded Innovative Industrial (IIPR) to Hold from Buy.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs continued their strong start to 2023 with residential mREITs advancing 1.6% today while commercial mREITs gained 1.1% - each finishing the week with gains of over 1%. Two Harbors (TWO) gained after it reported preliminary Q4 results, noting that its Book Value Per Share ("BVPS") rose about 8% during the quarter and estimated that its BVPS has increased another 3% thus far in January. 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.

Economic Data This Week

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.

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