Stocks Rebound • Inflation Cools • Fed Minutes

• U.S. equity markets rebounded Wednesday while benchmark interest rates declined as investors weighed downbeat economic data against Fed minutes showing reluctance to prematurely ease the pace of monetary tightening.
• Following declines of 0.4% yesterday, the S&P 500 advanced 0.8% today while the tech-heavy Nasdaq 100 gained 0.5% and the Mid-Cap 400 rallied 1.5%.
• Buoyed by the pull-back in benchmark interest rates, real estate equities were again among the leaders today. Equity REITs gained 2.3% while Mortgage REITs advanced 2.1%.
• Investors received more encouraging news on the inflation front this morning as ISM manufacturing data showed that prices paid by factories in December declined to the lowest level in nearly three years.
• The first major employment report of the week- the JOLTS survey- showed signs of persistent tightness in labor markets, however, with job openings remaining at nearly 10.5 million in November.

Income Builder Daily Recap

U.S. equity markets rebounded Wednesday while benchmark interest rates declined as investors weighed downbeat economic data against Fed minutes showing reluctance to prematurely ease the pace of monetary tightening. Following declines of 0.4% yesterday, the S&P 500 advanced 0.8% today while the tech-heavy Nasdaq 100 gained 0.5% and the Mid-Cap 400 rallied 1.5%. Buoyed by the pull-back in benchmark interest rates, real estate equities were among the leaders for a second-straight session with the Equity REIT Index advancing by 2.3% today with all 18 property sectors in positive-territory while the Mortgage REIT Index advanced another 2.1%.

The 10-Year Treasury Yield (US10Y) dipped another 7 basis points today to 3.71% as investors parsed manufacturing data showing mounting signs of cooling economic growth and cooler-than-expected inflation data in Europe. Crude Oil prices fell nearly 5% - each retreating for a second-straight session after climbing to their highest levels in two months last week. Yield-sensitive equity sectors were among the leaders today with Homebuilders and Real Estate (XLRE) posting strong gains while Energy (XLE) and Technology (XLK) stocks were among the laggards.

We saw more encouraging news on the inflation front today as ISM manufacturing data showed that prices paid by factories declined to the lowest level in nearly three years in December. The ISM's measure of prices paid dropped to 39.4 from 43.0 in November - the ninth straight monthly decrease in the index - and the lowest reading since February 2016 excluding the brief pandemic plunge in April 2020. The first major employment report of the week - the JOLTs survey - showed signs of persistent tightness in labor markets, however, with job openings remaining at nearly 10.5 million in November.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Casino: Gaming & Leisure Properties (GLPI) announced that it completed its previously announced $635M of two casino properties from Bally's Corporation - Bally's Tiverton Casino & Hotel in Tiverton, RI and Bally’s Hard Rock Hotel & Casino Biloxi in Biloxi, MS. These properties were added to the Company’s existing Master Lease with Bally’s. The initial rent for the lease was increased by $48.5 million on an annual basis, subject to contractual escalations based on the CPI with a 1% floor and 2% ceiling. The Master Lease has an initial term of 15 years (with 14 years remaining) followed by four five-year renewals at the tenant’s option. GLPI continues to have the option, subject to receipt by Bally’s of required consents, to acquire the real property assets of Bally’s Twin River Lincoln Casino Resort in Lincoln, RI prior to December 31, 2024 for a purchase price of $771M.

Storage: National Storage (NSA) - which we own the REIT Focused Income Portfolio - rallied nearly 4% after it announced that it expanded the total borrowing capacity of its credit facility by $405M to $1.955 billion with an accordion feature to expand the total borrowing capacity to $2.5 billion. In Storage REITs: Locked-In And Sticky we noted that storage REITs have defied expectations to the upside as comprehensively as any real estate sector since the start of the pandemic, delivering earnings growth of over 50% since 2019. Despite the housing-driven slowdown in self-storage demand, we believe that the risk/reward dynamic at these valuations is quite attractive given the 'stickiness' of demand, strong balance sheets, low cap-ex needs, and impressive operational track record.

Net Lease: A pair of net lease REITs provided business updates this morning. CTO Realty (CTO) advanced 1.6% today after it announced full-year acquisition totals of $314M at a weighted-average going-in cash cap rate of 7.5% while its full-year disposition volume totaled $81.1M at a weighted average exit cap rate of 6.2%. Alpine Income (PINE) finished flat today after announcing that it acquired $187M in properties during 2022 - slightly above its most recent full-year guidance at $180M - at a weighted-average cap rate of 7.1%. PINE sold $155M of properties in 2022 - slightly below its guidance target - at a weighted average exit cap rate of 6.5%. In Net Lease REITs: Calling The Fed's Bluff we discussed how despite the narrower investment spreads, it's been "business as usual' for most net lease REITs, which have acquired more assets over the last 12 months than in any period since 2013.

Additional Headlines from The Daily REITBeat on Income Builder

• We're excited to announce that Armada ETF Advisors is a new contributing author on Income Builder. Members now receive access to Armada's insights and analysis focused on residential REITs. Read their recent reports and follow their Seeking Alpha page here.
• CareTrust (CTRE) announced that it has completed the $13M sale of five senior housing facilities to a regional owner/operator of assisted living and memory care facilities in Virginia.
• Public Storage (PSA) announced that Tom Boyle, the Company’s Chief Financial Officer, has been appointed to also serve as its Chief Investment Officer, effective January 1, 2023.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were broadly higher for a second-straight day with residential mREITs advancing 2.7% while commercial mREITs advanced 2.5%. Hannon Armstrong (HASI) rallied more than 5% after it closed two new investments in grid-connected renewable energy assets developed, owned and operated by AES Corp. HASI will acquire a 49% equity interest in a 1.3 GW portfolio of 18 operating solar and wind projects located across six states: Arizona, California, New York, South Dakota, Utah, and Virginia. Notable leaders today included Angel Oak (AOMR) - which pushed its week-to-date gains to nearly 30% - while Chimera (CIM) rallied once again to push its week-to-date gains to nearly 13%. 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

As noted in our Real Estate Weekly Outlook, employment data highlights a critical holiday-shortened week of economic data in the week ahead headlined by JOLTS data on Wednesday, ADP Payrolls and Jobless Claims data on Thursday and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of roughly 200k in December - which would be the smallest gain since December 2020 - and for the unemployment rate to stay steady at 3.7%. 'Good news is bad news' will likely be the theme of these reports as investors and the Fed await the long-awaited cooldown in labor markets which has yet to fully materialize. Strong job gains observed in the BLS' nonfarm establishment survey, however, have been at odds with most other employment metrics showing a more material slowdown in hiring including the BLS' household survey in the same report which showed a second-straight month of net job declines last month.

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