• U.S. equity markets advanced for a third-day Thursday- continuing a post-Fed rally sparked by a "dovish hike" - while investors parsed another busy slate of earnings reports and employment data.
• Pushing its week-to-date advance to nearly 3%, the S&P 500 gained 1.5% today while the tech-heavy Nasdaq 100 rallied 3.6%. The Dow was a laggard, however, declining 39 points.
• Real estate equities continued their strong week following a handful of upbeat earnings results. Equity REITs rallied 2.3% with all 18 property sectors in positive-territory while Mortgage REITs gained 0.8%.
• Apartment REIT Mid-America (MAA) rallied more than 4% after reporting solid fourth-quarter results, recording 2022 FFO growth of 21.4% - matching its prior guidance - and projected 2023 FFO growth of 6.4%.
• Office REITs Brandywine (BDN) and Kilroy (KRC) each rallied following better-than-expected earnings reports. BDN was able to complete $705M in asset sales in Q4 and used the proceeds to refinance its debt.

Income Builder Daily Recap

U.S. equity markets advanced for a third-day Thursday - continuing a post-Fed rally sparked by a "dovish hike" - while investors parsed another busy slate of earnings reports and employment data. Pushing its week-to-date advance to nearly 3%, the S&P 500 gained 1.5% today while the tech-heavy Nasdaq 100 rallied 3.6%. The Dow was a laggard, however, declining 39 points. Real estate equities continued their strong week following a handful of upbeat earnings results. The Equity REIT Index rallied 2.3% today with all 18 property sectors in positive territory while the Mortgage REIT Index gained 0.8%. Homebuilders and the broader Hoya Capital Housing Index were again among the leaders as well, pushing their weekly gains to nearly 7%.

Ahead of the critical payrolls report on Friday morning, the Labor Department reported its quarterly data on nonfarm productivity which provided further evidence of easing inflationary pressures, showing a decline in unit labor costs to 1.1% in Q4 - below expectations of 1.5% - which lifted productivity to a 3.0% annualized rate last quarter. The 10-Year Treasury Yield remained at 3.40% today - hovering around the lowest levels since September. Crude Oil dipped another 1.2% today while Natural Gas prices continued their sharp declines to levels last seen in late 2019. Six of the eleven GICS equity sectors were higher today ahead of reports this afternoon from several mega-caps including Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG).

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Apartment: Mid-America (MAA) rallied more than 4% after reporting solid fourth-quarter results, recording 2022 FFO growth of 21.4% - matching its prior guidance - and projected 2023 FFO growth of 6.4%. As expected, blended rent growth cooled to 5.7% in Q4 from 13.9% last quarter as relatively steady renewal rent growth at 10.1% offset a moderation in new lease rent growth to 2.2%. Income Builder contributor David Auerbach commented, "We were expecting conservative guidance to start the year, and we would expect a more cautious tone from management as it relates to macro unknowns at the start of the year. We would view initial 2023 guidance as a low bar for earnings and a number should rise over the course of the year." We've discussed how recent data from Apartment List and Zillow shows that rent growth cooled considerably in the back-half of 2022 and investors are split on whether we're seeing the start of a sustained downtrend with negative annual rent growth or whether the recent softness is more symptomatic of a normalization back towards pre-pandemic "trend levels."

Office: Brandywine (BDN) surged nearly 10% after it reported fourth-quarter results, noting that its full-year 2022 FFO rose 0.7% but forecast a 15.9% decline in FFO in 2023 at the midpoint of its guidance range. Encouragingly, BDN was able to complete $705M in asset sales in Q4 and used the proceeds to refinance its looming $350M debt maturity and pay down its $600 million unsecured line of credit, pushing out the majority of its maturities beyond 2026. Kilroy (KRC) rallied nearly 4% after reporting decent fourth-quarter results, noting that its full-year 2022 FFO rose 20.3% but forecast a 3.8% decline in FFO in 2023 at the midpoint of its guidance range. KRC achieved leasing spreads of 12.3% in Q4 - up from 7.5% in the prior quarter and recorded an 80 basis point sequential increase in occupancy rates. This evening, we'll publish an Office REIT sector report to the Income Builder marketplace analyzing recent earnings results and high-level fundamentals.

As discussed in our REIT Earnings Preview: The New Normal, REITs enter earnings season with some momentum amid the recent moderation in interest rates and hopes of a 'softish' economic landing following a punishing year of stock price performance. How REITs are responding to this higher rate environment – both on the acquisitions and the financing side - will be closely watched. REITs hunkered down in 2022, but opportunities are becoming more plentiful and we see the non-traded REIT segment as one area that may be "ripe for the picking" if investor redemptions continue. Full-year FFO guidance will be the most closely watched metric, especially in the residential, retail, and office sectors given the wide range of expectations. We'll hear results this afternoon from Camden Properties (CPT) and Omega Healthcare (OHI).

Additional Headlines from The Daily REITBeat on Income Builder

• VICI Properties (VICI) announced it will provide a construction loan for up to $287.9 million for the development of Great Wolf Lodge in Mashantucket, CT, a resort project adjacent to the Foxwoods Resort Casino. The 549-room indoor water park resort is expected to open in 2025.
• Digital Realty (DLR) announced an agreement with global energy company Engie that will drive the expansion of renewable energies in Germany with a 10-year power purchase agreement for a 116 megawatts (MW) share of a new 154 MW ground-mounted solar photovoltaic project.
• Alexander & Baldwin (ALEX) announced that Lance K. Parker, currently A&B's president & chief operating officer (COO), has been appointed the Company's new president & chief executive officer (CEO) effective July 1, 2023 succeeding CEO Christopher J. Benjamin who will retire on June 30.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs continued their stellar start to the year with residential mREITs gaining another 0.9% today while commercial mREITs rallied 1.5%. Ellington Financial (EFC) traded slightly lower today after it announced that it will launch a preferred offering for a Series C Fixed-Rate Reset Cumulative Redeemable Preferred Stock that will trade on the NYSE under symbol EFC-C. After the close today, PennyMac (PMT) reported that its book value per share ("BVPS") declined about 2% in Q4 to $15.78 and its earnings per share was -$0.07/share on net investment income of $49.4M citing "declines in PMT’s interest rate and credit sensitive strategies."

Economic Data This Week

The jam-packed week of economic data concludes with the BLS Nonfarm Payrolls report on Friday. Economists expect job growth of roughly 185k in January and for the unemployment rate to tick higher to 3.6%. Average hourly earnings - a closely-watched metric in recent months - is expected to slow to a 4.3% year-over-year rate from 4.6%.

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