A Hawkish Pivot

seekingalpha04-21

U.S. equity markets posted their worst week in a year while benchmark interest rates surged to five-month highs as investors monitored an intensification of geopolitical tensions and hawkish Fed ...

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posted their worst week in a year while benchmark interest rates surged to five-month highs as investors monitored an intensification of geopolitical tensions and hawkish Fed ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684933-a-hawkish-pivot\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"MPW","symbol_name":"Medical Properties Trust","start_time":0,"source_url":"https://seekingalpha.com/article/4684933-a-hawkish-pivot","article_id":"2429241935","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/668600163/image_668600163.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2429241935","pubTimestamp":1713704400,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"U.S. equity markets posted their worst week in a year while benchmark interest rates surged to five-month highs as investors monitored 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delayed cut expectations.Declining on all five trading sessions, the S&P 500 declined another 3.1% this week - its worst week since March 2023 - while high-flying technology stocks were hit particularly hard.Real estate equities remained under considerable pressure this week after a shaky start to earnings season, with notably weak reports from industrial REITs, which had been pandemic-era leaders.Logistics stalwart Prologis plunged 13% after lowering its full-year outlook, citing weaker demand and elevated supply. Earnings season is off to a surprisingly solid start for office REITs, however, with results showing a relatively impressive rebound in leasing activity.Matteo Colombo/DigitalVision via Getty Images Real Estate Weekly Outlook U.S. equity markets posted their worst week in a year while benchmark interest rates surged to five-month highs as investors monitored an intensification of Middle East tensions and an acknowledgment from Federal Reserve officials that recent inflation data will likely delay rate cuts. Inflamed by resurgent energy prices and insatiable Federal government spending, Fed Chair Powell acknowledged a stalling-out of inflation progress in recent months and noted that it will \"likely take longer than expected\" to cut interest rates. Hoya Capital Declining on all five trading sessions and closing more than 5% below its late-March highs, the S&P 500 declined another 3.1% this week - its worst week since March 2023. Mega-cap technology stocks - which had been the driving force behind the equity market resurgence from the October 2023 lows - were hit particularly hard this week, with the Nasdaq 100 plunging by over 5%. Smaller-cap companies - which have lagged considerably this year - posted more muted declines this week, however, with the Small-Cap 600 posting declines of 1.3%. Real estate equities remained under considerable pressure this week after a shaky start to earnings season, with notably weak reports from industrial REITs, which had been pandemic-era leaders. Extending its three-week dip to over 8%, the Equity REIT Index slumped another 3.3% on the week, with 15-of-18 property sectors in negative territory, while the Mortgage REIT Index finished lower by 0.1%. Hoya Capital Marking a significant escalation in Middle East tensions, an Iranian drone attack on Israel over the weekend sent global energy prices to seven-month highs early in the week, but WTI Crude Oil sold off later in the week on renewed demand concerns. Meanwhile, downward pressure on bonds continued this week amid a drumbeat of hawkish commentary as the Federal Reserve enters its \"quiet period\" ahead of its May 1st policy decision. Among several notable remarks, NY Fed President Williams broached the possibility that the Fed's next move may be a hike rather than a cut, while Minneapolis Fed President Kashkari suggested delaying rate hikes until 2025. Soaring to its highest level since last November, the 10-Year Treasury Yield jumped another 10 basis points on the week to 4.62%, while the policy-sensitive 2-Year Treasury Yield jumped by 9 basis points to 4.99%. Swaps markets are now pricing in just a 17% probability that the Fed will cut rates in June - down sharply from odds of nearly 30% at the end of last week. Markets now expect just 1.5 rate cuts in 2024 - down from the 1.9 cuts priced in at the start of the week, and down from a peak of around 7 cuts earlier this year. Hoya Capital Real Estate Economic Data Below, we recap the most important macroeconomic data points over this past week affecting the residential and commercial real estate marketplace. Hoya Capital After a retreat in mortgage rates in late 2023 sparked some upside momentum in the long-sluggish housing sector, both homebuying and construction activity have again cooled as rates pushed back towards multi-decade highs. Freddie Mac reported that week mortgage rates climbed past 7% for the first time this year, swelling to 7.10% this week - up a half-percentage point from lows in mid-January. Data this week showed that Existing Home Sales slumped 4% in March from the prior month and 3% from a year earlier to a 4.19 million annualized rate. Separate data showed that Housing Starts dipped 14.7% in March to a 1.32 million annual pace - the lowest since August and posting the sharpest month-over-month decline since the first month of the pandemic in April 2020. Building Permits also fell 4.3% to a 1.46 million rate - both coming in well below consensus estimates. While a sharp dip in the volatility multifamily sector drove much of the move, single-family activity was also notably weaker than anticipated - a bit of a surprise after stronger-than-expected Homebuilder Sentiment data earlier in the week, with builder optimism matching its highest level since last July. Hoya Capital Single-family (1 unit) housing starts declined by 12.4% in March to a 1.022M annualized rate, while multifamily (5+ unit) starts dipped by 20.8% to a 290k annualized rate. Notably, just three months over the past decade have recorded a lower quantity of multifamily starts. Supply concerns in the apartment sector have been the root of the market pessimism on apartment REITs as soaring rents sparked a wave of new development that we're seeing come to market. After several years of muted supply growth, multifamily starts jumped 20% in 2021 and another 15% in 2022, but pulled back by 13% in 2023 and are lower by 38% so far in 2024. Industry data provider Yardi expects that deliveries will top 500k in 2024 - representing a roughly 3.0% increase in existing stock - with concentrations in rapidly growing markets in the South and West. Consistent with starts data, Yardi expects 2024 to be the peak for deliveries of this cycle with supply growth tailing off by early 2025. Hoya Capital Meanwhile, a key look into the health and sentiment of the U.S. consumer, data this week showed that Retail Sales were considerably stronger than expected in March, posting a back-to-back acceleration in the annual growth rate for the first time since late 2022. Providing more support for the \"hawkish\" path for Fed policy, Total Retail Sales rose 0.7% in March - well above the 0.4% consensus expectation - which translated to a year-over-year increase of 4.0%. Core Retail Sales - which excludes auto and gas - gained 1.0% - well above the expected gain of 0.3%. The 4.9% year-over-year increase in Core Retail Sales was the second-strongest month of the past year. General merchandise retailers reported the strongest sales trends in March, while clothing, electronics, and department stores reported weakness. Of note, home improvement stores have reported a solid rebound in sales in early 2024 following a period of notable weakness in 2023 as higher rates chilled housing market activity and delayed remodeling and repair activity. Hoya Capital Equity REIT & Homebuilder Week In Review Best & Worst Performance This Week Across the REIT Sector Hoya Capital As discussed in our Earnings Preview, real estate earnings season kicked off this week with results from the initial half-dozen REITs, and over the next month, we'll hear results from 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. We noted that REITs once again enter earnings season on a skid, with the Equity REIT Index now 12% off its recent highs in late December. While many public REITs have best-in-class balance sheets, even the most well-capitalized real estate owners have been unable to escape the gravitational force of the \"high for longer\" environment. Property-level fundamentals have remained surprisingly resilient across most property sectors this year - notably in the residential, retail, and logistics sectors - but we've seen a bit of emerging softness in the early this earnings season. We discussed some \"green shoots\" that we've observed in recent commentary and industry data: a firming in residential rents despite ample multifamily supply, steady positive momentum in retail, a modest rebound in office leasing, some cooling in travel demand, softer leasing trends in goods-oriented property sectors, and an overall slowdown in construction activity. Hoya Capital Industrial: After delivering surprisingly strong results throughout 2023 in the face of a \"goods economy\" recession, we saw clear signs of slowing in logistics fundamentals across reports from the three largest industrial REITs this week as moderating leasing demand clashes with elevated supply growth. Logistics stalwart Prologis (PLD) plunged 13% in its worst week since the pandemic meltdown in March 2020 after it kicked off REIT earnings season on a sour note, reporting surprisingly soft results trimming its full-year outlook, citing softer demand and particular weakness in its Southern California portfolio. PLD attributed the demand slowdown to \"indecision\" from its tenant base driven by cost-cutting, higher interest rates, and geopolitical concerns. Prologis trimmed its 2024 outlook for all of its comparable metrics, citing expectations for net absorption \"to be lower than our prior expectations and leasing to stay competitive.\" Prologis now expects full-year FFO growth of 7.8% this year - down from its prior guidance of 9.2% - and sees same-store NOI growth of 6.8% - down from its prior guidance of 8.5%. Occupancy is now expected to average 96.25% this year - down from its prior target of 97.0%. Also of note, PLD revised downward its expectations for development starts to a midpoint of $2.75 billion - down 15% from its prior guidance of $3.25 billion. Hoya Capital More broadly, Prologis now expects 175M SF of nationwide industrial absorption this year - down considerably from its prior forecast of 250M SF - which would be the weakest since 2012 and expects the national vacancy to rise to 6.5% this year, which would also be the highest since 2012. Results from the other two industrial REITs showed similar signs of softening logistics fundamentals. First Industrial (FR) dipped 11% after reporting similarly soft results and lowering its full-year outlook, citing a softer leasing environment due to \"ongoing uncertainty in the overall economy and interest rate environment.\" FR now expects FFO growth of 5.3% this year - down from its prior 6.1% expectation - and sees same-store NOI growth of 7.75% - down from its prior guidance of 8.5%. Occupancy is now expected to average 96.25% this year - down from its prior target of 96.5%. Leasing spreads cooled to +44.8%, down from its average of +57% in 2023. Rexford (REXR) declined 8% despite reporting results that were a bit stronger, highlighted by an upward FFO guidance boost. REXR now expects FFO growth of 6.2% this year - up from 4.3% in its prior guidance - while it maintained its full-year NOI growth expectation of 7.5%. There were signs of softer demand trends, however, as REXR reported that its comparable cash rent spreads cooled to 33.6%, which follows eight-straight quarters of above 45%. Including a 1.1M square foot renewal lease - which had a favorable extension option for a modest 4% rent bump - REXR's leasing spread was just 13.2%. Hoya Capital Office: Earnings season is off to a surprisingly solid start for office REITs, however, with results from the initial duo showing an impressive rebound in leasing activity in Q1, consistent with recent upbeat data from brokerage firm JLL, which reported that nationwide leasing activity in Q1 was 14% above last year's level. JLL also noted that office groundbreakings fell to the lowest volume in decades in Q1, with just 300k SF of new construction beginning. Philly-focused Brandywine (BDN) gained 0.5% this week reporting reported decent results, highlighted by 359k SF of total leasing activity - its best quarter since Q2 2022 - and 19% below its pre-pandemic average. While BDN's property-level performance has been relatively solid over the past two years - with +5.3% same-store NOI growth in Q1, driven by its 21st straight quarter of positive leasing spreads - its balance sheet has given it problems. Despite maintaining its outlook for 2% NOI growth this year, BDN now expects its FFO to decline by -18.7% this year - down from -17.4% - driven by higher interest rates on its recent bond refinancing. NYC-focused SL Green (SLG) declined 3% despite reporting very strong leasing activity of 634k SF in Q1 - its best quarter since Q3 2022 and 19% above pre-pandemic average. SLG significantly increased its FFO guidance due to $2.1B of strategic debt modifications and extensions, including the refinancing of its largest 2024 maturity: $1.075B mortgage debt at 280 Park Ave. SLG now expects FFO growth of 47.3% this year, to levels that would exceed its pre-pandemic FFO. Hoya Capital Cell Tower: A critical earnings season for the stumbling cell tower REIT sector kicked off this week - the weakest-performing sector over the past two years amid a slowdown in 5G-related network expansion. Crown Castle (CCI) declined 2% after it reported in-line results and maintained its full-year outlook, while providing some updates on the ongoing strategic review of its fiber business. CCI maintained its full-year outlook across all metrics, including its expectations of a -8.5% decline in FFO - a dip driven primarily by the Sprint cancellation following its 2020 merger with T-Mobile. At the property level, CCI continues to see a relatively solid 5% organic growth, comprised of 4.6% growth from towers, 16% growth from small cells, and 2% from fiber. In earnings commentary, CCI indicated that carrier leasing activity remains status-quo at levels that are 50% below the peaks at the initial outset of the 5G cap-ex cycle in 2022, and noted that it hasn't seen anything that would alter its full-year outlook. Regarding its fiber strategy review - which is the result of activity investor pressure to re-focus the business following several years of peer underperformance - CCI noted that it has \"recently engaged with multiple parties, who have expressed interest in a potential transaction involving all or part of our fiber business. These discussions are ongoing.\" Hoya Capital Net Lease: Small-cap Alpine Income (PINE) finished lower by 2% this week after it kicked off net lease earnings season with an in-line report and maintained its full-year outlook. Unlike many of its larger net lease peers that have plowed ahead with acquisitions despite the compressed investment spreads, PINE has been quiet in recent quarters on the transactions-front - making just a single $1M land purchase in Q1 - noting that \"sellers have been reluctant to transact at prices that reflect the current interest rate environment.\" In earnings call commentary, PINE noted that valuations on the 1031-side, in particular, have remained \"amazingly sticky\" with some sub-$5M properties still selling for sub-5% cap rates. In response to a question on how it expects the net lease market to respond to the latest uptick in rates, however, PINE noted that it is \"seeing a little bit more movement in the market as folks that were hoping for a better rate environment are just going to start moving ahead with their business plans... they'd rather deploy now rather than see if another quarter goes by and if things change.\" Elsewhere in the net lease space this week, Global Net Lease (GNL) was among the outperformers after it reported that it has completed $462M of property sales and plans to use the net proceeds to pay down existing debt. We'll hear results from Essential Properties (EPRT) and Getty Realty (GTY) in the week ahead. Hoya Capital Healthcare: Embattled hospital owner Medical Properties Trust (MPW) - which is the most heavily-shorted REIT with nearly a third of its outstanding shares held short - surged more than 10% this week after it announced last Friday afternoon a $1.1B portfolio sale of five hospitals and also announced that it maintained its quarterly dividend at $0.15/share (14.4% dividend yield). MPW announced that it sold its five Utah hospitals - which were managed by struggling operator Steward Healthcare before its operations were acquired by CommonSpirit Health in 2023 - into a newly formed joint venture with an unidentified institutional asset manager. MPW retained a 25% interest in the JV, while the partner purchased a 75% interest for $886M, which \"fully validates MPW's underwritten lease base of $1.2B.\" The JV placed secured debt financing as well, providing $190M of additional cash to MPW, which generated combined cash proceeds for MPW of $1.1B. Earlier in the week, MPW announced that it closed on its sale of five facilities in California and New Jersey to Prime Healthcare for a total of $350M. The pair of deals brings MPW's total portfolio sales to $1.6B, which is 80% of its initial FY 2024 target. MPW is \"now confident that we will exceed our initial target of $2.0B in liquidity transactions in 2024 based on the valuations achieved on recent transactions and the terms we are actively negotiating\" for other asset sales. The deals were generally well-received by analysts, with Deutsche Bank upgrading MPW to Hold from Sell and raising its price target to $5/share. Hoya Capital Data Center: Equinix (EQIX) - another REIT that has been targeted by short-sellers - declined 2% this week after it announced a $600M Joint Venture deal with PGIM Real Estate to build and operate the first xScale data center in the United States. Located at EQIX's Great Oaks data center campus in Silicon Valley, the campus expansion represents the second joint-venture deal between the two firms. PGIM Real Estate will control an 80% equity interest in the joint venture, and Equinix will own the remaining 20% equity interest. The two-story facility, which will be known as SV12x, will be built out in two phases and is expected to provide more than 28 megawatts (MW) of power capacity at full build out. The first phase of the facility is scheduled to be completed within the next three months. Equinix came into the cross-hairs of short-seller Hindenburg Research in late-March and has now dipped nearly 20% since hitting record highs earlier that month. In the report, Hindenburg claimed that EQIX overstates its AFFO, oversells capacity at its facilities, and faces increased competition from \"hyperscale\" cloud providers - allegations that EQIX subsequentially denied. Data Center REITs had previously been targeted by another short-seller - Chanos & Company - in July 2022, which ironically came at the \"bottom\" of a half-decade-long slump in data center rental rates. Hoya Capital Hotel: A pair of hotel REITs announced c-suite shakeups this week. DiamondRock Hotels (DRH) - which owns 36 upscale hotels across a national footprint comprising 9,700 rooms - dipped 5% this week after it announced a series of leadership changes, including the appointment of a new CEO. DRH elevated Jeffrey Donnelly - who has been its Chief Financial Officer since joining the company in 2019 - to the CEO role, succeeding Mark Brugger, who is departing the company after 20 years as the firm's president and CEO. In the release, DRH's board commented that \"now is the right time to establish a simpler executive structure that more closely aligns with the needs of the business.\" Also in the release, DRH reaffirmed its full-year 2024 guidance, which projects comparable revenue per available room growth between 2% and 4%, and adjusted FFO growth of 2% at the midpoint of its range. Elsewhere, Ashford Hospitality (AHT) dipped 8% after it announced that Rob Hays - its current president and CEO - would be stepping down in June and succeeded by its current SVP Stephen Zsigray. In our Earnings Preview, we noted that recent TSA Checkpoint data shows some mild softening in passenger throughput following a record-setting pace in early 2024. TSA recorded that passenger throughput was roughly 5% above 2019 levels in March and April - a slowdown from the 10% comparable increase in January and the 7% increase in February. Hoya Capital All of the REITs that declared dividends this week held their payouts steady at current levels: Omega Healthcare (OHI) at a 9.0% yield, SL Green (SLG) at a 6.2% yield, EPR Properties (EPR) at a 8.5% yield, Gladstone Land (LAND) at a 4.4% yield, Apple Hospitality (APLE) at a 6.3% yield, and Park Hotels (PK) at a 9.2% yield. REIT earnings season kicked into gear in the week ahead with results from roughly two dozen REITs, highlighted by results on Monday from lab space REIT Alexandria (ARE) and manufactured housing REIT Equity LifeStyle (ELS), on Tuesday from industrial REIT EastGroup (EGP) and apartment REIT Equity Residential (EQR), on Wednesday from office REIT Empire State Realty (ESRT), and Thursday from medical office REIT Healthpeak (DOC) and self-storage REIT CubeSmart (CUBE). We'll also hear results from a half-dozen homebuilders in the coming week, including PulteGroup (PHM), NVR Inc (NVR), M/I Homes (MHO), Century Communities (CCS), Meritage Homes (MTH), and Tri Pointe (TPH). Hoya Capital Mortgage REIT Week In Review Following two weeks of sharp declines, Mortgage REITs delivered notable outperformance this week over their Equity REIT peers, with the iShares Mortgage REIT ETF (REM) finishing lower by just 0.1%. Residential mREIT Rithm Capital (RITM) was among the leaders this week after it announced the launch of Sculptor Loan Financing Partners - a captive CLO equity investment platform - led by its recently-acquired asset manager Sculptor. One of several mREITs that has made a recent push into the corporate Collateralized Loan Obligation market, RITM noted that the platform \"allows us to be nimble in accessing the CLO market when opportunities arise.\" The other (former) mREIT that made a major CLO push - Ellington Residential (EARN) - announced this week that it announced that it has rebranded as Ellington Credit Company as part of its decision to transition from a mortgage REIT into a closed-end fund. Elsewhere in the mREIT space, MFA Financial (MFA) announced the pricing of its new exchange-traded \"baby bond\" - a $75M 9.000% senior note due 2029, which will trade on the NYSE under symbol \"MFAO\". The Notes received a rating of BBB- from Egan-Jones Ratings. Hoya Capital 2024 Performance Recap & 2023 Review Through sixteen weeks of 2024, real estate equities have significantly lagged behind the broader equity benchmarks following a powerful year-end rebound in 2023. The Equity REIT Index is lower by -9.8%, while the Mortgage REIT Index is lower by -6.6%. This compares with the 4.5% gain on the S&P 500, the 2.3% gain for the S&P Mid-Cap 400, and the 4.4% decline for the S&P Small-Cap 600. Within the REIT sector, 2 of the 18 property sectors are higher for the year - Billboard and Single-Family REITs - while Industrial, Cell Tower, and Storage REITs have lagged on the downside. At 4.62%, the 10-Year Treasury Yield is higher by 74 basis points on the year, while the 2-Year Treasury Yield has risen 56 basis points to 4.99%. Following a late-year rally in the final months of 2023, the Bloomberg US Bond Index is lower by -3.1% this year. WTI Crude Oil is higher by 18.3% this year, lifting the broader Commodities complex higher by 6.9%. Hoya Capital Economic Calendar In The Week Ahead We'll see another busy week of housing market and inflation data in the coming week - along with a jam-packed slate of corporate earnings results - as the Federal Reserve enters its \"quiet period\" ahead of its meeting on May 1st. Following the downbeat construction and existing sales data this past week, we'll see New Home Sales data on Tuesday, which is expected to show a modest acceleration to a 670k annualized rate in March - above the July 2022 lows of 543k, but well below the October 2020 high of 1.27M. On Thursday, we'll get the first look at first-quarter Gross Domestic Product, which is expected to show that the U.S. economy expanded at a 2.5% annualized rate in Q1 - a slowdown from roughly 4% pacing in the back half of 2023. We'll also be watching Pending Home Sales and Jobless Claims data on Thursday. On Friday, we'll see the most closely-watched report of the week - the PCE Price Index. The Fed's preferred gauge of inflation, Core PCE is expected to tick lower to 2.7% in March, down from its peak of 5.6% but still above its stated 2% policy objective. Headline PCE is expected to tick higher to 2.6%, reflecting a resurgence in gasoline and energy prices. Hoya Capital For an in-depth analysis of all real estate sectors, check out all of our quarterly reports: Apartments, Homebuilders, Manufactured Housing, Student Housing, Single-Family Rentals, Cell Towers, Casinos, Industrial, Data Center, Malls, Healthcare, Net Lease, Shopping Centers, Hotels, Billboards, Office, Farmland, Storage, Timber, Mortgage, and Cannabis. Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website. Hoya Capital  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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