A Critical Cooldown

seekingalpha06-16

U.S. equity markets posted a mixed performance this week, while benchmark interest rates dipped to two-month lows after a critical slate of inflation data showed an encouraging cooldown in price ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nA Critical Cooldown\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-16 21:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4699456-a-critical-cooldown><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>U.S. equity markets posted a mixed performance this week, while benchmark interest rates dipped to two-month lows after a critical slate of inflation data showed an encouraging cooldown in price ...</p>\n\n<a href=\"https://seekingalpha.com/article/4699456-a-critical-cooldown\">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":"EFC","symbol_name":"Ellington投资","start_time":0,"source_url":"https://seekingalpha.com/article/4699456-a-critical-cooldown","article_id":"2443997877","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1406960186/image_1406960186.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2443997877","pubTimestamp":1718542800,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"U.S. equity markets posted a mixed performance this week, while benchmark interest rates dipped to two-month lows after a critical slate of inflation data showed an encouraging cooldown in price press","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"EFC":"Ellington投资","CCI":"冠城","HOUS":"Anywhere Real Estate Inc.","CLDT":"Chatham Lodging信托","PENN":"佩恩国民博彩","AMT":"美国电塔","O":"Realty Income Corp","MORT":"VanEck Mortgage REIT Income ETF","RWT":"Redwood Trust Inc","AJX":"Great Ajax Corp","MITT":"AG Mortgage Investment Trust","CMTG":"Claros Mortgage Trust, Inc.","BK4585":"ETF&股票定投概念","MFA":"MFA Financial","BK4534":"瑞士信贷持仓","OUT":"OUTFRONT Media Inc.","RITM":"Rithm Capital","BK4150":"赌场与赌博","WPC":"W. 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Seven REITs raised their dividends this past week - the most hikes in any single week in over a year.StockByM Real Estate Weekly Outlook U.S. equity markets posted a mixed performance this week, while benchmark interest rates dipped to two-month lows after a critical slate of inflation data showed an encouraging cooldown in price pressures in May, helping to offset a relatively hawkish updated outlook by the Federal Reserve. As expected, the central bank held the Fed Funds rate steady at two-decade highs of 5.50%, but the committee's \"dot plots\" - which had not been updated since the March meeting - showed that FOMC members are now penciling in just one rate cut in 2024 at the median, down from the prior median of roughly 3 rate cuts. Hoya Capital Posting a series of record highs throughout the week, the S&P 500 advanced another 1.6% to extend its year-to-date total returns to over 15%. The gains were notably top-heavy this week despite the more favorable interest rate dynamic for smaller-cap segments of the market - which have been substantial underperformers since the start of the Fed's rate hiking cycle. While the mega-cap Nasdaq 100 rallied 3.5% on the week, the Mid-Cap 400 declined 0.8%, while the Small-Cap 600 stumbled by 1.9%. Real estate equities - the single most \"Fed-sensitive\" market segment - were among the outperformed this week, however, as investors saw some light at the end of the tunnel amid a historical stretch of underperformance since the first Fed hike in March 2022. The Equity REIT Index advanced 1.3% on the week, with 13-of-18 property sectors in positive territory, while the Mortgage REIT Index rallied 1.6%. Hoya Capital Bond markets - which were jolted last Friday by the hotter-than-expected print on the BLS' \"headline\" jobs metric - rebounded sharply this week following the pair of cooler-than-expected inflation reports, while the Fed's policy decision and updated economic outlook was generally in line with market expectations. The late-week bond rally followed a sell-off early in the week as traders reacted to European election results showing a rightward political shift across much of the region, with the electorate indicating dissatisfaction with current center-left policies on migration, inflation, climate, and Ukraine support. Yields on French 10-year bonds surged to their highest this year after French President Macron called a legislative vote after suffering significant losses to right-wing parties. The 10-Year Treasury Yield closed the week at 4.22% - down 21 basis points to the lowest level since late March. The policy-sensitive 2-Year Treasury Yield dipped by 18 basis points to 4.70%, its lowest since early April. Swaps markets are now pricing in a 71% probability that the Fed will cut rates in September - up from below 50% last week - and imply a full 2.0 rate cuts in 2024 - up from 1.4 implied cuts last week. 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 All eyes were on the Consumer Price Index report this week, which posted a downside surprise for a second straight month, following three months of hotter-than-expected reports. Headline CPI was unchanged month-over-month and increased by 3.27% from a year ago - below consensus estimates of 0.1% and 3.40%, respectively. Core CPI - which excludes food and energy - rose 0.2% on the month and 3.42% on the year, which was also below expectations of 0.3% and 3.5%, respectively. CPI-ex-Shelter - the metric we watch most closely given the substantial lags in the BLS' shelter inflation metrics - declined -0.2% on the month, which dragged the year-over-year increase back down to 2.13%. We still see a continued distortion from the lagged recognition of shelter inflation, which accounted for effectively 100% of the increase in the Core CPI metric on a monthly basis and 70% of the increase on an annual basis. Helping to offset increases in the shelter component were declines in gasoline prices, airline fares, and new vehicle prices. Food inflation was effectively flat on the month and was higher by 2.1% - the most modest annual increase since March 2020. Hoya Capital Following the cooler-than-anticipated CPI report, the Producer Price Index the following day showed similarly encouraging trends of disinflation in May. The Headline PPI declined -0.2% month-over-month and 2.24% from a year earlier - well below consensus estimates of 0.1% and 2.5%, respectively. Core PPI followed the same pattern, coming in flat month-over-month and rising 2.34% from a year earlier - below estimates of 0.3% and 2.4%, respectively. A retreat in gasoline prices fueled a decline in the Final Demand: Goods index, which dipped by -0.8% in May after posting a gain of 0.4% in April. Prices also declined for diesel fuel, commercial electric power, and jet fuel. The Final Demand: Services index - which has been an area of \"sticky\" inflationary trends - was flat in May after rising by 0.6% in April. There were even more significant signs of disinflation further up the supply chain. The index for Processed Goods: Intermediate Demand dipped -1.5% in May, the largest decline since December 2022. Even further up the supply chain, the index for Unprocessed Goods: Intermediate Demand dipped -1.8% in May, the largest decline since December 2023. Hoya Capital Equity REIT & Homebuilder Week In Review Best & Worst Performance This Week Across the REIT Sector Hoya Capital The recent rate retreat has revived some optimism back into the real estate sector, a welcome relief after a dismal two years of macro headwinds. Seven REITs raised their dividends this past week - the most hikes in any single week in over a year. Both of the cannabis-focused equity REITs were among the seven hikes this week: Innovative Industrial (IIPR) raised its quarterly dividend by 4% to $1.90/share (7.2% dividend yield), and NewLake Capital (OTCQX:NLCP) hiked its quarterly dividend by 5% to $0.43/share (8.9% dividend yield). A pair of net lease REITs also hiked their dividends: W. P. Carey (WPC) hiked its quarterly dividend by 1% to $0.870/share (6.9% dividend yield), and Realty Income (O) raised its monthly dividend by 0.2% to $0.263/share (6.0% dividend yield). The other three dividend hikes were - somewhat surprisingly - from within the mortgage REIT sector, which we'll discuss below. Each of the other dozen equity REITs that declared dividends this week held their payouts steady with current levels. In our State of REIT Nation report published this week, we noted that dividend coverage remains very healthy by historical standards, as FFO growth has outpaced dividend growth since the start of the pandemic. REIT dividend payout ratios remained at around 70% on a trailing twelve-month basis - below the 20-year average of around 80%. Hoya Capital Cell Tower: Crown Castle (CCI) finished lower by 1.5% this week despite boosting its full-year FFO guidance and unveiling a cost-cutting strategy as part of its strategic and operating review of its fiber business, which it began in January amid pressure from a handful of activist investors. While the strategic review is ongoing, the operational review concluded with a plan to narrow its small-cell and fiber focus to \"higher-return projects to drive a more efficient use of capital,\" which will reduce cap-ex by $275-325M in 2024 and reduce labor costs by $100M per year going forward. CCI expects the plan to result in a reduction in site rental revenues of $30M and will incur a $110M restructuring charge related to staffing reductions and office closures. These changes will result in a reduction of 3-5k new small cell nodes in 2024, but CCI noted that it believes that there is \"sufficient demand to grow small cell revenues by double digits over the next several years.\" CEO Steven Moskowitz - which Crown Castle hired from its peer American Tower (AMT) in April following the departure of Jay Brown in December - commented that the \"increased focus on cost discipline and capital efficiency will enable us to generate higher returns and reduce our reliance on external capital to fund organic growth opportunities.\" The net result is a $25M increase in bottom-line AFFO, which translates to a $0.06/share increase in its full-year 2024 outlook. Hoya Capital Office: Net Lease Office (NLOP) - which was spun-out from W. P. Carey last year amid its strategic exit from office - rallied 10% this week after it announced the sale of two office properties totaling 347K sf to Blue Cross Blue Shield for gross proceeds of $60.7 million. Following the sale, NLOP owned 47 office properties, comprising 44 properties in the US and three properties in Europe. Net proceeds after closing costs were used to repay approximately $48 million on its senior secured mortgage and approximately $8 million on its mezzanine loan. Elsewhere, Vornado (VNO) - the second-largest office REIT - rallied 5% this week after it announced a $400M refinancing of 640 Fifth Avenue - a 315k SF office and retail property in Manhattan in which VNO owns a 52% stake. The $400M five-year interest-only non-recourse loan carries a fixed rate of 7.47% and will allow VNO to pay down by $100M the prior $500M loan, which was fully guaranteed by Vornado and was scheduled to mature in August 2024. In our Earnings Recap, we noted that office REITs reported decent first-quarter results showing a much-needed pickup in leasing activity - but the prospects for a recovery rest at the feet of the Fed, as elevated rates continue to put downward pressure on both valuations and free cash flows, thereby fueling the cycle of distress. Hoya Capital Strip Center: Small-cap Whitestone REIT (WSR) - a Sunbelt-focused retail REIT that owns 55 strip centers - gained 2% this week after disclosing in an 8-K filing that it received - and rejected - a takeover bid from MCB Real Estate, which proposed in early June to buy Whitestone for $14.00/share - a roughly 7% premium to current levels. In the 8-K, WSR's written response to MCB stated that it \"respectfully declines\" the offer and noted that its Board believes that the offer price \"does not represent a fair valuation and strongly believes that current management has a clear strategy and compelling pathway for creating long-term shareholder value significantly greater than the amount offered.\" In the offer letter, MCB noted that it owns 4.69 million shares in WSR, representing about 9.6% of its outstanding common stock, making MCB one of the company's top five shareholders. Whitestone had already been in focus since last December amid a proxy battle with activist firm Erez Asset Management, which unsuccessfully lobbied for two seats on WSR's board. Erez had focused on WSR's relative underperformance compared to some of its peers and urged the company to consider asset sales. Relatedly, in the strip center sector, SITE Centers (SITC) - which has been among the most significant net sellers in recent quarters - was little changed after it announced a $495M deal to sell a six-property portfolio to Pine Tree. SITC will retain 94k SF at these six properties for inclusion in the expected spin-off of Curbine Properties, which will focus on single-tenant net lease properties. Hoya Capital Cannabis: Innovative Industrial (IIPR) - the largest cannabis REIT - was little-changed this week after it announced a $43M sale-leaseback deal to acquire a 16-acre property comprising 145k sf of industrial space in Ocala, FL. IIPR will enter into long-term, triple-net lease with a subsidiary of AYR Wellness - a vertically integrated U.S. multi-state cannabis operator - which has been an existing tenant in a 11k SF processing facility in Ohio. AYR plans to redevelop a 98k square foot building within the property to serve as a regulated cannabis cultivation facility, and IIPR has committed to funding AYR up to $30M for the construction. Cannabis REITs have rebounded over the past month after the U.S. Drug Enforcement Administration moved to reclassify marijuana as a less dangerous drug, rescheduling it from Schedule I to Schedule III of the US Controlled Substances Act. Perhaps the most significant action towards Federal legalization in several years, the move would recognize the medical uses of cannabis and acknowledge it has less potential for abuse than some of the nation's most dangerous drugs. However, it would not legalize marijuana outright for recreational use. The federal prohibition - and the resulting limit on access to traditional banking - has forced cultivators and retailers to turn to alternative sources for capital, including Cannabis REITs. Hoya Capital Billboard: OUTFRONT (OUT) slipped 1.5% this week after it announced that it closed its previously announced C$410 million deal with Bell Media in which OUTFRONT will sell its Canadian business to Bell, which OUT notes \"will enable us to proactively reduce our financial leverage and also focus entirely on operating what is now a fully domestic business.\" First-quarter earnings results from the highly procyclical billboard sector were surprisingly solid in light of the recent softening in economic data. Lamar (LAMR) reported strong results and raised its full-year outlook, citing strength in local advertising spending and a rebound in its digital segment. LAMR now expects FFO growth of 4.8% this year - up from 3.7% previously - which would be 35% above its pre-pandemic FFO from 2019. LAMR's local segment posted +6.7% revenue growth versus 2023 while national was down -5.5%, noting that it \"continues to see some larger accounts taking a cautious approach to their ad spend.\" LAMR commented that \"pacings for the rest of 2024 are materially stronger than this time last year...and if the year plays out as it appears it will, you will see us raise the distribution in August and perhaps also pay a special dividend at year end.\" OUTFRONT maintained its outlook for high-single-digit AFFO growth \"reflecting steady growth in billboard and a return to growth in transit.\" Hoya Capital Hotel: Small-cap hotel REIT Chatham Lodging (CLDT) dipped 3% this week after S&P announced that CLDT would be removed from its Small-Cap 600 Index as part of its quarterly reconstitution. No other REITs were impacted by any of the three major S&P index rebalances, but several non-REIT real estate companies were affected. Brokerage firm Anywhere Real Estate (HOUS) - formerly Realogy - was also dropped from the Small-Cap 600. Also of note, casino operator PENN Entertainment (PENN) was moved from the Mid-Cap 400 to the Small-Cap 600, while private equity sponsor KKR & Co. (KKR) was upgraded to the S&P 500 from the Mid-Cap 400. Currently, there are 29 REITs in the S&P 500, comprising just 2.2% of the large-cap benchmark. REITs are better represented in the mid- and small-cap benchmarks, however, with 30 REITs in the Mid-Cap 400 - comprising 7.1% a sector weighting, and 57 REITs in the Small-Cap 600 - comprising a 7.3% sector weighting. Hoya Capital This week, we published our State of REIT Nation report, which analyzed high-level trends across the public real estate industry and summarized major themes from REITweek - the annual REIT industry conference - which was held last week in New York City. Humbled by two years of rate-driven headwinds, the venue halls at the Midtown Hilton were as quiet as any REITweek in recent memory. Excitement was muted after numerous \"false starts\" on the long-awaited Fed pivot, a dearth of IPO and M&A activity, and a two-year period of significant underperformance versus the broader market. In our updated State of REIT Nation report, we noted that since the start of the Fed's rate hike cycle in March 2022, the REIT Index has underperformed the S&P 500 by a whopping 40 percentage points. Tempered optimism was the prevailing sentiment among REIT executives, however, with most noting steady-to-strong property-level fundamentals, but also an uptick in debt-driven distress among some of their private market peers. \"Delay and pray\" has remained the strategy for many highly-levered property owners amid a dearth of buying interest and limited capital availability. Public REITs have opted to remain on the sidelines, but there was shared sentiment that opportunities for public REITs will emerge as private markets bottom-out. Hoya Capital Mortgage REIT Weekly Recap Mortgage REITs delivered a strong week amid a robust bid for mortgage-backed bonds, lifting the Mortgage REIT ETF (MORT) higher by 1.6% on the week. Encouragingly, a trio of mortgage REITs hiked their dividends this week - including two residential mREITs - which exceeded the prior full-year total in each of the past two years. Residential mREIT Chimera Investment (CIM) rallied more than 10% after it hiked its quarterly dividend by 6% to $0.35/share (11.7% dividend yield). AG Mortgage (MITT) gained 1% after it hiked its quarterly dividend by 6% to $0.19/share (11.2% dividend yield). Small-cap commercial mREIT Lument Finance (LFT) also gained 1% after it hiked its quarterly dividend by 14% to $0.08/share (12.8% dividend yield). Each of the other half-dozen mREITs that declared dividends this week held their dividends steady with current levels, including several that were at-or-above 100% payout levels last quarter: Claros Mortgage (CMTG), Ready Capital (RC), Redwood Trust (RWT), MFA Financial (MFA), Ellington Financial (EFC), and Apollo Commercial (ARI). We've seen 3 mortgage REITs raise their dividends this year, while five mREITs have lowered. Hoya Capital Elsewhere in the mREIT space, Great Ajax (AJX) - a small-cap mREIT that focuses its investments in re-performing and non-performing residential loans - rallied 8% this week after it completed the previously-announced deal with Rithm Capital (RITM) in which Rithm will become Great Ajax's external manager. AJX has been among the worst-performing mREITs over the past two years - cutting its dividend five times - as its book value per share has plunged by nearly 50% since the end of 2022 as higher interest rates have had substantial negative impacts on the valuations of its non-performing loans. Announced in February, the deal calls for Rithm to provide a one-year term loan to Great Ajax for up to $70M, which will be used to repay AJX's convertible notes. Great Ajax will issue five-year warrants to Rithm based on the amounts drawn under the loan facility, exercisable for shares of Great Ajax's common stock. Rithm also purchased 2.9M shares of Great Ajax common stock. AJX commented that the deal \"marks a significant milestone for Great Ajax, with plans to transition the company from a legacy residential loan platform into an opportunistic vehicle focused on commercial real estate.\" Hoya Capital 2024 Performance Recap As we approach the halfway point of 2024, real estate equities have continued to lag behind the broader equity benchmarks following a powerful year-end rebound in 2023. The Equity REIT Index is lower by -4.1%, while the Mortgage REIT Index is lower by -3.0%. This compares with the 14.6% gain on the S&P 500, the 4.7% gain for the Mid-Cap 400, and the -2.9% decline for the Small-Cap 600. Within the REIT sector, 7 of the 18 property sectors are higher for the year, led by Apartment, Cannabis, and Healthcare REITs - while Timber, Industrial and Cell Tower REITs have lagged on the downside. At 4.22%, the 10-Year Treasury Yield is higher by 34 basis points on the year, while the 2-Year Treasury Yield has risen 27 basis points to 4.70%. The recent rate retreat has lifted the Bloomberg US Bond Index back into positive-territory on the year, with total returns of 0.1%. WTI Crude Oil is higher by 14.1% this year, lifting the Commodities complex by 7.2%. Hoya Capital Economic Calendar In The Week Ahead Following a busy slate of inflation data this past week, the health of the U.S. consumer and the state of the housing market will be the primary focus in the week ahead. U.S. equity and bond markets will be closed on Wednesday in recognition of Juneteenth, which became a Federal holiday in 2021. On Tuesday, we'll see Retail Sales data for May, which is expected to show a modest rebound in spending after a disappointing report in April in which retail sales posted a sequential decline for the first time since January. On Wednesday, we'll see NAHB Homebuilder Sentiment data, which is expected to show that builder optimism recovered slightly in recent weeks after a late-Spring dip driven by resurgent mortgage rates. On Thursday, we'll see Housing Starts and Building Permits data, which is also expected to show a modest rebound in home construction activity in May following a sharp pullback in recent months as financing conditions remain challenging. We've postulated that the Fed's rate hiking cycle may actually worsen the longer-term inflationary pressures, given the resulting pull-back in housing supply. On Friday, Existing Home Sales data is expected to show an annualized sales velocity of 4.1M in May - still hovering around three-decade lows, and considerably below the typical 5.0-5.5M range. We'll also be watching Jobless Claims data on Thursday and a handful of PMI reports throughout the week. 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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