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  • Alex Pettee, CFA

Bear Market • Retail Rout • REIT Dividend Hike

  • U.S. equity markets remained under pressure Friday- extending a dismal stretch of declines to seven-straight weeks- amid concerns over inflation, slowing growth, and questions over the Fed's ability to engineer a "soft-landing."

  • Briefly dipping into "bear market" territory before paring its declines, the S&P 500 finished fractionally higher. The Dow extended its skid to eight-straight weeks, it's worst stretch since the Great Depression.

  • Real estate equities were among the leaders on the day - and for the week - as the Equity REIT Index advanced 0.7% today with 9-of-19 property sectors in positive territory.

  • Another day, another REIT dividend hike. Timber REIT Rayonier hiked its quarterly dividend by 6% to $0.285/share - its first dividend increase since 2018 - and the 61st REIT dividend hike of 2022.

  • Seemingly "stuck between a rock and a hard place," comments from Fed officials throughout the week indicated that the FOMC appears content with the "repricing in markets" and unfazed by signs of cracks emerging in leading economic indicators.

Income Builder Daily Recap

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U.S. equity markets remained under pressure Friday - extending a dismal stretch of declines to seven-straight weeks - amid concerns over inflation, slowing growth, and questions over the Fed's ability to engineer a "soft-landing." Briefly dipping into official "bear market" territory before paring its declines late in the session, the S&P 500 finished fractionally higher today but the tech-heavy Nasdaq 100 declined another 0.3%. The Dow Jones Industrial Average extended its skid to eight-straight weeks, it's worst stretch of declines since the Great Depression. Real estate equities were among the leaders on the day - and for the week - as the Equity REIT Index advanced 0.7% today with 9-of-19 property sectors in positive territory while Mortgage REITs declined 0.5%.

Seemingly "stuck between a rock and a hard place," comments from Fed officials throughout the week indicated that the FOMC appears content with the "repricing in markets" and unfazed by signs of cracks emerging in leading economic indicators. Constructively, bond markets - which had seen stiff selling pressure until the past few weeks - have caught a bid as the 10-Year Treasury Yield pulled back another 7 basis points to close at 2.79% - well below the 3.20% peak seen last Monday. A dismal week for retail stocks continued today as the Consumer Discretionary (XLY) sector declined another 1.7% as a handful of the largest retailers including Target (TGT) and Walmart (WMT) dipped more than 20% on the week.

Real Estate Daily Recap

Mall: Today, we published Mall REITs: Cracks In Consumer Dims Outlook on the Income Builder marketplace. One step forward, one back. After nearly doubling in value last year, mall REITs have been the worst-performing major property sector in 2022 as the stimulus-fueled retail strength has stalled. The tech wreck has spilled over to become the retail wreck in recent weeks. Retail stocks are now off by nearly as much as the depth of the pandemic lockdowns in 2020. Mall REITs earnings results were actually quite encouraging with Simon (SPG) and Tanger (SKT) boosting their full-year FFO outlook, noting a recovery in tenant sales and rent collection back to pre-pandemic levels. Soaring fuel prices and persistent inflation have triggered a "rapid slowdown" in several retail categories in recent months, however, and a recession could be a final death blow to lower-tier malls.




Timber: Another day, another REIT dividend hike. Rayonier (RYN) hiked its quarterly dividend by 6% to $0.285/share - its first dividend increase since 2018. Elsewhere in the timber sector, Weyerhaeuser (WY) announced the completion of its acquisition of 80,800 acres of timberlands in North and South Carolina from Campbell Global for $265M. Earlier this week, we published our State of the REIT Nation which noted that amid the 'REIT Recovery,' FFO growth has significantly outpaced dividend growth, driving the dividend payout ratios to just 68.8% in Q1 - well below the 20-year average of 80%. With a historically low dividend payout ratio, we believe that REITs are well-equipped to deliver another year of robust dividend growth that may meet or exceed the record year in 2021 - despite the challenging macro environment. REITs enter this period of economic uncertainty on solid footing and balance sheets as strong as they've been.

Office: Highwoods Properties (HIW) - which we own in the REIT Focused Income Portfolio - announced that it sold a pair of assets as part of its strategy to dispose of roughly $500m in non-core properties that were acquired from Preferred Apartments (APTS) last year. HIW sold the FBI Tampa Field Office for $70.4M to fellow REIT Easterly Government (DEA). The building is a 138k sq ft, a four-story office building that is 100% leased to the General Services Administration for the beneficial use of the FBI until November 2040. HIW also announced the sale of its remaining office buildings in Greensboro, totaling 299K sq. ft. later this quarter or early in Q3 for $20.3M. As noted in our REIT Earnings Recap, office leasing demand - and earnings results from these office REITs - have been surprisingly resilient, particularly for REITs focused on business-friendly Sunbelt regions and specialty lab space.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were mixed today as residential mREITs finished flat while commercial mREITs declined 0.7%. On a slow day of newsflow, iStar (STAR) and Chimera (CIM) led to the upside while ACRES Realty (ACRE) was the laggard. In our Earnings Recap published last week, we noted that mREITs have been an upside standout over the past several weeks after earnings season showed that Book Value declines were generally not as steep as analysts projected. Residential mREIT Book Value Per Share ("BVPS") metrics declined by 8.4%, on average while commercial mREIT reported an average BVPS increase of 0.1%.

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, the Hoya Capital REIT Preferred Index finished lower by 0.67% today. REIT Preferreds ended 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now roughly 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of 6.96%.

Economic Data This Week

We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook published this weekend.

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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.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.