income builder 2021 24420.png
income builder trial button.png
RIET Hoya Capital High Dividend Yield ETF.png
HOMZ_Logo_Just Ticker.png
  • Alex Pettee, CFA

Data Center M&A • Apartment Dividend Hikes • Housing Shortage

  • U.S. equity markets advanced for the fourth-straight day Friday with the major averages posting their best weekly gains since November 2020 amid indications of potential de-escalation in the Russia/Ukraine conflict.

  • Pushing its weekly gains to nearly 6%, the S&P 500 advanced another 1.1% today while the tech-heavy Nasdaq 100 gained 2.1% to push its weekly gains to over 8%.

  • Real estate equities posted more muted gains today and for the week with the Equity REIT Index flat on the day with 11-of-19 property sectors in positive-territory while Mortgage REITs advanced 0.6%.

  • A pair of apartment REITs added their names to the swelling list of REIT dividend hikes. UDR (UDR) announced a 5% dividend hike while Equity Residential (EQR) raised its quarterly dividend by 4%.

  • Equinix (EQIX) advanced about 2% today after it announced a $705M deal to acquire four data centers from Empresa Nacional De Telecomunicaciones as it expands into the Chile and Peru markets.

Income Builder Daily Recap

We recently launched Hoya Capital Income Builder - a premier income-focused investment research service through Seeking Alpha Marketplace - that will be the new exclusive home of all of Hoya Capital's investment research. Income Builder focuses on real income-producing asset classes that offer the opportunity for diversification, monthly income, capital appreciation, and inflation hedging. If you're not already on board, give us a try with a completely risk-free two-week trial and take a look around.

U.S. equity markets advanced for the fourth-straight day Friday with the major averages posting their best weekly gains since November 2020 amid indications of potential de-escalation in the Russia/Ukraine conflict. Pushing its weekly gains to nearly 6%, the S&P 500 advanced another 1.1% today while the tech-heavy Nasdaq 100 gained 2.1% to push its weekly gains to over 8%. Real estate equities posted more muted gains today and for the week with the Equity REIT Index flat on the day with 11-of-19 property sectors in positive territory while Mortgage REITs advanced 0.6%.

Nine of the eleven GICS equity sectors were higher today, led on the upside by the Consumer Discretionary (XLY) and Technology (XLK) sectors while the Energy (XLE) sector lagged as WTI Crude Oil (CL1:COM) prices closed the week at roughly $105/barrel after breaching $130 earlier in the month. Homebuilders and the broader Hoya Capital Housing Index posted another day of solid gains after Existing Home Sales data showed that housing supply levels remain historically low with inventory down 15.5% from last year. Properties were on the market for just 18 days in February, on average, and 84% percent of homes sold were on the market for less than a month.

Real Estate Daily Recap

Apartments: A pair of apartment REITs added their names to the swelling list of REIT dividend hikes. UDR (UDR) announced a 5% dividend hike, raising its quarterly dividend to $0.38/share after a similarly-sized dividend hike last year. Elsewhere, Equity Residential (EQR) hiked its quarterly dividend by 4% to $0.625, its first dividend hike since Q1 2020. We've now seen 56 equity REITs raise their dividend so far this year, a faster pace than the record-highs set in 2021. As discussed in our State of the REIT Nation, REIT FFO growth has significantly outpaced dividend growth over the past year, setting the stage for significant dividend growth in the year ahead.

Net Lease: Today, we published Rates Up REITs Down? Not So Fast. Understood to be one of the more "bond-like" and rate-sensitive REIT sectors, net lease REITs have underperformed the REIT average for three straight years despite their impressive post-pandemic rebound. Despite their reputation as bond-substitutes, net lease REITs have historically delivered above-average earnings growth as accretive external growth has more than offset the drag from muted property-level growth. Net lease REITs entered 2022 firing on all cylinders, taking full advantage of cheap capital to fuel a "buying spree" of property acquisitions, fueling double-digit FFO and dividend growth.

Data Center: Equinix (EQIX) advanced about 2% today after it announced a $705M deal to acquire four data centers from Empresa Nacional De Telecomunicaciones as it expands into the Chile and Peru markets. The deal is expected to close in Q2 of 2022 and is expected to be immediately accretive to Equinix's AFFO upon closure. EQIX - along with its large-cap data center REIT peer Digital Realty (DLR) - has chosen to lean more heavily into international expansion over domestic consolidation over the past two years as the three smaller data center REITs - CoreSite, CyrusOne, and QTS Realty - were acquired last year by AMT, KKR, and Blackstone, respectively.

Timber & Farmland: Earlier this week, we published Land REITs: Ultimate Inflation Hedges. Publicly-traded landowners - specifically timber and farmland REITs - have been among the best-performing real estate sectors this year amid concerns over persistent inflation and soaring commodities prices. Amid the ongoing conflict with Russia- which is among the world's largest exporters of agriculture, gasoline, and timber products- the importance and value of North American production will become evident. Buying land has been a "hot trade" over the past year, and valuations appear extremely rich for farmland REITs with implied cap rates in the 2-3% range, but valuations of higher-quality timber REITs including PotlatchDeltic (PCH) and Weyerhaeuser (WY) remain quite attractive.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, commercial mREITs advanced 0.3% today while residential mREITs slipped 0.9%. Arbor Realty (ABR) was a laggard today, slipping 2% after launching a secondary common equity offering of 6.5M shares of common stock for total expected gross proceeds of $109M. Elsewhere, Annaly Capital (NLY) gained 2% after holding its quarterly dividend steady at $0.22/share while Granite Point (GPMT) also held its dividend steady at $0.25/share. The average residential mREIT pays a dividend yield of 11.19% while the average commercial mREIT pays a dividend yield of 7.44%.


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.

high yield REIT investing hoya capital logo.png