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  • Alex Pettee, CFA

Confidence Slumps • Fed Ahead • Dividend Hikes

  • U.S. equity markets finished lower Friday- ending another volatile week with cumulative declines of 2-3%- as investors assessed developments in the Russia/Ukraine conflict and await the Fed's decision next week.

  • Finishing near session lows and recording its fourth weekly decline in five weeks, the S&P 500 slipped 1.3% today while the tech-heavy Nasdaq 100 dipped 2.0%, pushing its weekly decline to nearly 4%.

  • Real estate equities were among the outperformers today and on the week, but the Equity REIT Index still finished lower by 0.8% today with 4-of-19 property sectors in positive territory.

  • Concerns over inflation have weighed on consumer confidence in recent months, sending the University of Michigan's consumer sentiment index tumbling to 10-year lows in March while expectations for one-year inflation rates increased to 5.4% - the highest since the early 1980s.

  • Another day, another wave of REIT dividend hikes. Today, American Tower (AMT), Global Medical REIT (GMRE), and WP Carey (WPC) raised their dividends while Park Hotels (PK) reinstated its dividend, which had been suspended since early 2020.

Income Builder Daily Recap

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U.S. equity markets finished lower Friday - ending another volatile week with cumulative declines of 2-3% - as investors assessed developments in the Russia/Ukraine conflict and await next week's Federal Reserve rate hike decision. Finishing near session-lows and recording its fourth weekly decline in five weeks, the S&P 500 slipped 1.3% today while the tech-heavy Nasdaq 100 dipped 2.0%. Real estate equities were among the outperformers today and on the week as the Equity REIT Index slipped 0.8% today with 4-of-19 property sectors in positive territory while Mortgage REITs declined 0.5%.

Stocks began the session with sharp gains after reports of progress on peace talks between Russia and Ukraine, but lost ground throughout the day as the conflict dragged into a third weekend. All eleven GICS equity sectors finished lower today while just one - Energy (XLE) - was higher on the week. Gasoline (XB1:COM) and WTI Crude Oil (CL1:COM) futures resumed their rally today as consumer gasoline prices in the United States again hit fresh records today at $4.33/gallon. 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.

Ongoing concerns over inflation have weighed on consumer confidence in recent months, sending the University of Michigan's consumer sentiment index tumbling to 10-year lows in March while expectations for one-year inflation rates increased to 5.4% - the highest level since the summer of 2008. Earlier in the week, the IBD/TIPP Economic Optimism Index showed a similar slump across all of their monthly metrics with its read on consumer confidence sliding 3 points to 41, the lowest since October 2013. Confidence in Federal Policy remains near all-time record lows at just 41.9 in March. Pollsters commented last month that "people view a lack of trust in our politicians and government structures as one of the biggest issues we face as a nation."

Real Estate Daily Recap

Another day, another wave of REIT dividend hikes. Today, American Tower (AMT) - which we own in the Income Builder REIT Dividend Growth Portfolio - raised its quarterly dividend by 1% to $1.40/share. Elsewhere, Global Medical REIT (GMRE) hiked its quarterly dividend by 2.4% to $0.21 while WP Carey (WPC) raised its quarterly payout by 0.2% to $1.057/share. Finally, Park Hotels (PK) reinstated its quarterly dividend at $0.01/share after having been suspended since 1Q20. We've now seen 46 equity REITs raise their dividend so far in 2022, a faster pace than the record year in 2021.

Shopping Center: Cedar Realty (CDR) traded flat today after reporting fourth-quarter earnings results, confirming that the company will sell a 33-property grocery-anchored portfolio for $840.0M and the remainder while Wheeler Real Estate (WHLR) will acquire the rest of the company for $291M. Today, we published Shopping Center REITs: Back on Sale. Unlike their mall REIT peers, Shopping Center REITs entered 2022 with fundamentals that are as strong - or possibly even stronger - than before the pandemic with a full recovery completed. Occupancy rate trends and leasing spreads have been especially impressive with rents rising by double-digit rates in Q4, indicating clear signs of pricing power for the first time since the mid-2010s.

Industrial: Earlier this week, we published Supply Chains At Breaking Point, which discussed our updated outlook on the industrial REIT sector. On the front-lines of the historic supply-chain shortages, Industrial REITs outperformed the broad-based REIT Index for the sixth consecutive year in 2021, but have uncharacteristically lagged in early 2022. Industrial vacancy rates declined to record-lows below 4% despite robust levels of new development, driving rent growth of nearly 20% in North America with some markets seeing 50% year-over-year increases. Industrial REITs are never "cheap" but much like the residential sector, supply-demand fundamentals are likely to remain favorable into the late 2020s.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, commercial mREITs finished higher by 0.1% today while residential mREITs slipped 0.3%. AGNC Investment (AGNC) declined by 2% today after announcing yesterday afternoon that its estimated tangible Book Value Per Share ("BVPS") was $13.48 at the end of February, down from $14.91 at the end of January as the yield curve continued to flatten into early March. AGNC also held its monthly dividend steady at $0.12/share. The average residential mREIT pays a dividend yield of 11.20% while the average commercial mREIT pays a dividend yield of 7.56%.

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.

We recently launched Hoya Capital Income Builder - the new premier investment research service focused on real income-producing assets classes. Whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and a comprehensive suite of tools and models to help build sustainable portfolio income targeting premium dividend yields of up to 10%. And of course, subscribers receive complete access to our investment research - including reports that are never published elsewhere - from Hoya Capital and our team of contributors.

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.