New REIT Listing • PPI Plunge • Dividend Hikes & Cut
U.S. equity markets rallied Thursday after Producer Price data showed the sharpest monthly decline in wholesale prices in nearly three years, providing further evidence of cooling inflationary pressures.
Pushing its week-to-date gains to about 1%, the S&P 500 rallied 1.3% today, while the Mid-Cap 400 and Small-Cap 600 each advanced 0.7%. The Dow added 383 points.
Real estate equities were laggards today despite the encouraging inflation news, with the Equity REIT Index slipping 0.4% with 8-of-18 property sectors in negative territory, but Mortgage REITs gained 0.1%.
Peakstone Realty Trust (PKST) - formerly known as Griffin Realty Trust - began trading on NYSE today through a direct listing. Peakstone is a net lease office and industrial REIT that owns 78 properties.
The headline Producer Price Index posted a 0.5% month-over-month decline in March, dragging the annual increase to just 2.7%, the lowest since January 2021. The Core PPI Index, meanwhile, recorded a month-over-month decline for the first time since May 2020.
Income Builder Daily Recap
U.S. equity markets rallied Thursday after Producer Price data showed the sharpest monthly decline in wholesale prices in nearly three years, providing further evidence of cooling inflationary pressures. Lifting its week-to-date gains to roughly 1%, the S&P 500 rallied 1.3% today, while the Dow added 383 points, and the tech-heavy Nasdaq 100 rallied 2.0%. The 2-Year Treasury Yield finished flat at 3.97%, while the 10-Year Treasury Yield ticked higher by 3 basis points to 3.45%. Real estate equities were laggards today despite the encouraging inflation news, with the Equity REIT Index slipping 0.4% with 8-of-18 property sectors in negative territory, but the Mortgage REIT Index gained 0.1%.
After Consumer Price Index data yesterday showed a sharp cooldown in "real-time" inflation, Producer Price Index data was also significantly cooler-than-expected, showing that wholesale prices declined by the most in nearly three years in March. The headline PPI posted a 0.5% month-over-month decline for the month, dragging the annual increase to just 2.7%, the lowest since January 2021. The Core PPI Index, meanwhile, recorded a month-over-month decline for the first time since May 2020. Sharp declines in energy prices helped to drag goods inflation lower by 1.0% in the month, while services prices - which had been 'stickier' in recent months - declined by 0.3% in March, which was the largest decline since falling 0.5% in April 2020. Forward-looking sub-series within the PPI report were encouraging as well, with the cost of partly finished goods falling for the eighth time in nine months.
Real Estate Daily Recap
Best & Worst Performance Today Across the REIT Sector
Net Lease: Peakstone Realty Trust (PKST) - formerly known as Griffin Realty Trust - began trading on NYSE today through a direct listing. Peakstone is a net lease office and industrial REIT that owns 78 properties across 24 states. Roughly 70% of PKST's Net Operating Income ("NOI") is derived from its portfolio of 55 office properties, while 30% of NOI comes from its portfolio of 23 industrial properties. As noted in our State of the REIT Nation report, REIT IPOs have been essentially non-existent over the past year following a wave of activity in 2021 - a year that saw seven public listings, the most since 2013. There were no REIT IPOs in 2022 for the first time since 2001, but two REITs went public through direct listing including healthcare REIT Strawberry Fields, which went public through a direct listing and after trading OTC for several quarters. A handful of recent REIT IPO filings have been either postponed or canceled, including office owner Priam Properties, net lease REIT Four Springs, and cannabis-focused Freehold Properties.
After the close today, net lease REIT Agree Realty (ADC) hiked its monthly dividend by 1.2% to $0.243/share (4.4% yield), becoming the 45th REIT to hike its dividend this year. While REIT dividend hikes continue to significantly outpace dividend cuts, Office Properties Income (OPI) become the 11th REIT to announce a dividend cut this year. Earlier this week, A pair of struggling externally-managed REITs advised by RMR Group - Office Properties Income (OPI) and Diversified Healthcare (DHC) - announced plans to combine in a controversial deal that has sent both stocks sharply lower on the week. The combined company - known as "Diversified Properties" - would pay an annual dividend of $0.25/quarter (12.1% yield), down 55% from OPI's current dividend rate of $0.55/quarter. DHC has $700M of debt coming due by mid-2024 and wasn’t in compliance with its debt covenants.
Earlier this week, asset manager Blackstone (BX) announced that it closed on its largest real estate drawdown fund, securing $30.4 billion of total capital commitments for its Real Estate Partners X, which will target "opportunistic deals across sectors such as rental housing, hospitality and data centers." The announcement comes a week after Blackstone Real Estate Income Trust ("BREIT") disclosed that it again had to limit withdrawals from the $70 billion non-traded real estate fund in March - the fifth straight month that the firm's flagship fund limited redemptions. Total redemption requests for March jumped to $4.5B - up 15% from the prior month, and Blackstone fulfilled just 15% of these requests - $666M - down from 35% in February and 25% in January. Next week, we'll publish a report analyzing BREIT - focusing on its acquisition history and performance relative to comparable public REITs, and the effects of the wave of redemptions on the rest of the public REIT sector.
Malls: Yesterday, we published Mall REITs: Only the Strong Have Survived which discussed recent earnings results and our updated outlook on the sector. Following nearly three-years of rental rate and occupancy declines, the supply-demand dynamic has recently favored retail landlords, rewarding many retail REITs with some long-elusive pricing power. Unlike their strip center REIT peers, however, mall REITs are still trying to claw their way back to pre-pandemic levels as improving property-level performance has recently been offset by higher financing costs. Outside of Simon and Tanger, the remainder of the mall sector continues to teeter dangerously close to the edge. Macerich needs some luck to avoid the fate of the lower-tier REITs that have been stuck in a seemingly endless loop in-and-out of restructurings and de-listings.
Additional Headlines from The Daily REITBeat on Income Builder
Moody’s downgraded the credit rating of office REIT Franklin Street Properties (FSP) to “Ba3” from “Ba1”
Alexandria Real Estate (ARE) announced that it sold a partial interest in 15 Necco Street to Mori Trust to fund the development of the property
Mortgage REIT Daily Recap
Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were mixed today, with residential mREITs slipping 0.3% while commercial mREITs advanced 0.4%. Two REITs declared dividends over the past 24 hours, and both held their payouts steady at prior levels: Seven Hills Realty (SEVN) held its quarterly dividend steady at $0.35/share (14.0% yield). Orchid Island (ORC) held its monthly dividend steady at $0.16/share (17.5% yield). ORC also announced that its estimated Book Value Per Share at the end of Q1 was $11.56 - down about 3% from the end of Q4 - and noted that it expects to report Q1 GAAP EPS of $0.10.
Economic Data This Week
The busy week of economic data wraps up on Friday with Retail Sales data - which is expected to show a second straight month-over-month decline in sales - along with the first look at Michigan Consumer Sentiment for April, a report which includes the closely-watched inflation expectations survey.
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