REITs gained in the week ended Nov. 17 on the back of a ‘likely no more rate hikes scenario’ and solid Q3 earnings results.
The economic data continued to support a scenario of no more rate hikes by the Federal Reserve. Homebuilder, real estate, mortgage REIT stocks especially surged after Tuesday’s CPI report indicated that inflation is continuing to ease. Investors are said to be increasing bets that the Fed is done raising rates and may even start cutting in Q2’24.
Also, the sector posted earnings results that were stronger than expected across most property sectors. Among the equity REITs that provided updated guidance, 82% increased their forecast.
Unlike Q2, which saw a handful of poor reports and unexpectedly steep guidance and dividend cuts, there were no major ‘bombshells’ this earnings season, Seeking Alpha author Hoya Capital said.
Notably, larger players are looking to consolidate the sector, diversify asset classes and build scale. Strategic scrip mergers between publicly-listed REITs are expected to take off in 2024, head of corporate at the law firm Corrs Chambers Westgarth, Sandy Mak, said in an exclusive interview with Street Talk.
This week, the FTSE Nareit All Equity REITs index rose 4.37% from last week, while the Dow Jones Equity All REIT Total Return Index increased by 4.46%. FTSE NAREIT Mortgage REITs index was up 4.44%. Real Estate Select Sector SPDR ETF gained by 4.59% on a weekly basis.
Meanwhile, S&P 500 relatively lagged behind with a 2.24% gain.
Office REIT Peakstone Realty Trust (PKST), mortgage REIT Hannon Armstrong Sustainable Infrastructure Capital (HASI) and hotel REIT Ashford Hospitality Trust (AHT) were the biggest gainers of the week.
Infrastructure REITs increased the most among subsectors, followed by office REITs. The office subsector particularly gained after a research report by Fitch Ratings showed that WeWork bankruptcy was unlikely to pressure the subsector’s occupancies.