Return To Office? • Casino Deal • Stocks Rebound
U.S. equity markets rebounded Wednesday while the dollar climbed to five-week highs on optimism that a debt ceiling deal between Republican and Democrat negotiators could be reached before the deadline.
Pushing back into positive territory for the week, the S&P 500 advanced 1.2% while the Mid-Cap 400 gained 1.8% and the Small-Cap 600 rallied 2.5%. The Dow gained 408 points.
Real estate equities rebounded today, led by strength from several beaten-down property sectors including office and mall REITs. The Equity REIT Index advanced 1.4% today, with 16-of-18 property sectors higher.
Another day, another major casino deal. VICI Properties (VICI) announced today that it will acquire the real estate assets of four casinos in Canada from Century Casinos (CNTY) for C$221.7M (US$164.7M) in cash, representing an implied acquisition capitalization rate of 7.8%.
Office REITs rebounded today after Blackrock asked its roughly 20k employees to return to the office at least four days per week, providing some hope that the sluggish "return to the office" may be gathering some momentum as labor market conditions loosen.
Income Builder Daily Recap
U.S. equity markets rebounded Wednesday while the dollar climbed to five-week highs on optimism that a debt ceiling deal between Republican and Democrat negotiators could be reached before the June 1 deadline. Pushing back into positive territory for the week, the S&P 500 advanced 1.2% while the Mid-Cap 400 gained 1.8% and the Small-Cap 600 rallied 2.5%. The Dow gained 408 points. Real estate equities rebounded today, led by strength from several beaten-down property sectors including office and mall REITs. The Equity REIT Index advanced 1.4% today, with 16-of-18 property sectors in positive territory, while the Mortgage REIT Index rallied nearly 3%. Homebuilders and the broader Housing Index were also upside standouts.
Bonds remained under pressure today, however, as decent economic data this week has once again revived the drumbeat for another Fed rate hike in June. Swaps markets now imply a 25% chance of a June hike, up from less than 1% a week ago. The policy-sensitive 2-Year Treasury Yield jumped another 9 basis points to 4.17% today, while the 10-Year Yield rose another 3 basis points to 3.58%. Nine of the eleven GICS equity sectors traded higher today, with Consumer Discretionary (XLY) and Financials (XLF) stocks leading on the upside. Regional bank stocks were particularly strong after Western Alliance (WAL) - which has dipped more than 40% this year - provided a positive update on deposit growth, calming some concerns that the lender could be the next major bank failure following three major collapses since early March.
Real Estate Daily Recap
Best & Worst Performance Today Across the REIT Sector
Casino: Another day, another major casino deal. Following Gaming & Leisure Properties' (GLPI) deal with the Oakland A's to finance their new Las Vegas ballpark at Tropicana Las Vegas, VICI Properties (VICI) announced today that it will acquire the real estate assets of four casinos in Canada from Century Casinos (CNTY) for US$164.7M in cash, representing an implied acquisition capitalization rate of 7.8%. The four casinos include Century Casino & Hotel Edmonton, Century Casino St. Albert, Century Mile Racetrack and Casino, and Century Downs Racetrack and Casino in Calgary. The deal is the second major portfolio acquisition in Canada for VICI, following a $202M deal to acquire four casinos from PURE Entertainment in January. The Century Canadian Portfolio will be added to the existing triple-net master lease agreement between VICI and Century with an additional annual rent of $12.8 million. The transaction is expected to close in the second half of 2023.
Office: Office REITs rebounded today after Blackrock asked its roughly 20k employees to return to the office at least four days per week, providing some hope that the sluggish "return to the office" may be gathering some momentum as labor market conditions loosen. This evening, we'll publish an updated report on the 'pariah' of the commercial real estate sector - Office REITs - to the Income Builder Marketplace. Office REITs have remained in free-fall in recent months, plunging another 30% this year following a plunge of nearly 40% last year. Just how bad is it? The surge in interest rates has turned a weak-but-manageable situation into a rather bleak one - but there is more nuance to the story than the narrative would suggest. Nationally, property-level cash flows and occupancy rates are still only about 5% below pre-pandemic levels - albeit on a clear downward trajectory - while asking rents have continued to hover within 5% of all-time highs nationally, conditions that are far from catastrophic. The regional differences are substantial - and seemingly overlooked - with true "pain" seen in coastal public-transit-heavy markets while Sunbelt and secondary markets are seeing current conditions - and a future outlook - that is soft but not necessarily bleak.
S&P Global Market Intelligence reported today that U.S. equity REITs raised a total of $3.2 billion in April - below the $5.6 billion raised in March - and well below the $8.3 billion raised in April 2022. The offerings in April brought the year-to-date total to $19.85 billion, about 32.9% lower than the capital raised during the same period last year as REITs have significantly curtailed external growth activity since mid-2022. The slow twelve months of fundraising, however, comes after two record hauls from mid-2020 through mid-2022. Debt accounted for the majority of the funds raised in April at $2.7 billion as some REITs took advantage of a slight pull-back in benchmark interest rates, while common equity offerings accounted for the remaining $500 million. REITs have been reluctant to launch secondary equity offerings, given their relatively low stock prices. Cell tower REIT Crown Castle (CCI) raised the most capital during the month at $1.35 billion through two debt offerings, followed by net lease REIT Realty Income (O), which raised $1 billion via offerings of $600 million in unsecured notes due 2033 and another set of unsecured notes worth $400 million due in 2028.
Additional Headlines from The Daily REITBeat on Income Builder
SVC announced that BP completed its acquisition of TravelCenters of America. SVC received $379.3 million in cash as part of the transaction, including $188.0 million in prepaid rent from BP.
RLJ recast its $600.0 million senior unsecured revolving credit facility and entered into a new $225.0 million senior unsecured term loan extended to May 2027
Mortgage REIT Daily Recap
Mortgage REITs rebounded today with residential mREITs advancing 1.9% while commercial mREITs rallied 3.2%. Office-focused lenders were among the leaders today including Blackstone Mortgage (BXMT), Starwood Capital (STWD), and KKR Real Estate (KREF), which each gained at least 4%. 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 state of the U.S. housing market remains in focus on Thursday with Existing Home Sales data which is expected to decline slightly in April to a 4.30 million seasonally-adjusted annualized rate - up from the lows in January of 4.0 million, but well below the 2021 highs of over 6.5 million. We'll also be watching the weekly Jobless Claims data on Thursday, and a busy slate of PMI data over the next two days.
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