REIT Merger • Tanger Hikes Dividend • CPI Ahead
U.S. equity markets were mixed Tuesday while benchmark interest rates drifted slightly higher ahead of the critical CPI inflation report on Wednesday morning and bank earnings later this week.
Finishing essentially flat for a second-straight session, the S&P 500 closed fractionally lower today, but the Mid-Cap 400 and Small-Cap 600 each posted gains of around 1% for a second-day.
Real estate equities were among the leaders today with the Equity REIT Index advancing 0.4% with 15-of-18 property sectors in positive territory, while the Mortgage REIT Index gained 1.0%.
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 sent both stocks sharply lower on the session.
Tanger Outlets (SKT) traded higher today after hiking its quarterly dividend by 11%, becoming the 44th REIT to raise its dividend this year.
Income Builder Daily Recap
U.S. equity markets were mixed Tuesday while benchmark interest rates drifted slightly higher ahead of the critical CPI inflation report on Wednesday morning and bank earnings later this week. Finishing essentially flat for a second-straight session, the S&P 500 closed fractionally lower today, but the Mid-Cap 400 and Small-Cap 600 each posted gains of around 1% for a second-day. The Dow advanced 98 points while the tech-heavy Nasdaq 100 slipped 0.6%. Real estate equities were among the leaders today with the Equity REIT Index advancing 0.4% with 15-of-18 property sectors in positive territory, while the Mortgage REIT Index gained 1.0%.
Unveiled to a closed U.S. equity market due to the Easter holiday, the critical BLS nonfarm payrolls report last Friday showed that the U.S. economy added 236k jobs in March - the lowest monthly increase since December 2020 - which followed a downside surprise in all five major employment reports: JOLTs, ADP Payrolls, Jobless Claims, and Challenger Job cuts. After dipping to seven-month lows last week, however, benchmark rates rebounded today with the 2-Year Treasury Yield closing back above the 4.0%-level, up from its lows last week of 3.63%. The 10-Year Treasury Yield closed the session back above 3.40%, up from last week's lows of 3.25%. Five of the eleven GICS equity sectors finished higher on the session, with Industrials (XLI) and Energy (XLE) stocks leading on the upside while Utilities (XLU) lagged.
Real Estate Daily Recap
Best & Worst Performance Today Across the REIT Sector
Healthcare & Office: 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 sent both stocks sharply lower on the session. OPI owns 160 traditional office properties across 30 states, while DHC owns 379 properties across 36 states - primarily medical office and senior housing properties. Markets interpreted the deal as a "bail-out" for DHC, which traded as low as $0.65/share last year and is saddled over $3B in debt against its sub-$300M market capitalization. Under the proposed terms, DHC shareholders would receive 0.147 shares of OPI per share of DHC, which represented a nearly 40% premium to the prior closing price. DHC has $700 million of debt coming due by mid-2024 and wasn’t in compliance with its debt covenants. The release noted that the combined company - known as "Diversified Properties" - would pay an annual dividend of $0.25/quarter, which is more than 50% below OPI's current dividend rate.
Malls: Tanger Outlets (SKT) traded higher today after hiking its quarterly dividend by 11%, becoming the 44th REIT to raise its dividend this year. Today, we published Mall REITs: No Longer the 'Problem Child' 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
Fitch Ratings affirmed NHI's ratings including the “BBB-“ issuer default rating with a stable outlook
Brixmor (BRX) announced a cash tender offer to purchase up to $150 million of its outstanding 3.650% Senior Notes due 2024
Federal Realty (FRT) priced $350 million of 5.375% notes due 2028 to repay its outstanding 2.75% Notes due 2023
Mortgage REIT Daily Recap
Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs rebounded today, with residential mREITs advancing 0.6% while commercial mREITs gained 0.1%. Three REITs declared dividends over the past 24 hours, and all three held their payouts steady at prior levels: Dynex Capital (DX) held its monthly dividend steady at a $0.13/share (13.0% yield), Ellington Financial (EFC) held its monthly dividend steady at $0.15/share (14.7% yield), and Ellington Residential (EARN) held its monthly payout steady at $0.08/share (13.4% yield).
Economic Data This Week
Inflation is in the spotlight in another jam-packed week of economic data in the week ahead. The main event comes on Wednesday with the Consumer Price Index for March, which investors and the Fed are hoping will show a cooling of inflationary pressures. The headline CPI is expected to moderate to a 5.2% year-over-year rate, while the Core CPI is expected to decelerate to 5.6%. As with recent months, the metric we're watching most closely is the CPI-ex-Shelter Index. On Thursday, we'll see the Producer Price Index, which is expected to show an even more significant cooling of price pressures with the headline PPI expected to slow to a 3.1% year-over-year rate - down from the recent peak last March at 11.8%. On Friday, we'll see 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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