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  • Alex Pettee, CFA

Dovish Hike • Stocks Soar • REIT Earnings

  • U.S. equity markets surged Wednesday while benchmark Treasury yields retreated after a "dovish hike" from the Federal Reserve, raising rates by 50 basis points but tamping down expectations of future hikes.

  • Gaining for the third-straight day and delivering its largest one-day gains since mid-2020, the S&P 500 jumped 3.0% while the tech-heavy Nasdaq 100 gained 3.4% to climb out of "bear market" territory.

  • Real estate equities were also broadly higher amid the busiest 48-hour stretch of REIT earnings season. The Equity REIT Index advanced 1.2% today with 17-of-19 property sectors in positive territory.

  • ExtraSpace Storage (EXR) surged more than 6% after reporting very strong results and raising its full-year outlook, commenting that it's "off to an exceptional start in 2022, driven by high occupancy and strong pricing power." EXR now sees FFO growth of 18.3% this year.

  • Regency Centers (REG) - the largest shopping center REIT - rallied more than 6% reporting very strong results and raising its full-year outlook. Mall REITs also rallied today. Farmland Partners (FPI) also jumped 6% after reporting solid results.

Income Builder Daily Recap

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U.S. equity markets surged Wednesday while benchmark Treasury yields retreated after a "dovish hike" from the Federal Reserve, raising rates by 50 basis points but tamping down market expectations of future hikes. Gaining for the third-straight day and delivering its largest one-day gains since mid-2020, the S&P 500 jumped 3.0% while the tech-heavy Nasdaq 100 gained 3.4% to climb out of "bear market" territory. Real estate equities were also broadly higher amid the busiest 48-hour stretch of REIT earnings season. The Equity REIT Index advanced 1.2% today with 17-of-19 property sectors in positive territory while Mortgage REITs gained nearly 2%.

Responding to the "dovish hike" from the Fed, the 10-Year Treasury Yield declined 4 basis points to 2.92%, but the "real action" was seen in the 2-Year Treasury Yield, which dipped 15 basis points to 2.62% while the US Dollar dipped 0.8% after reaching 20-year highs earlier this week. Fixed income securities - which were in the midst of a historically weak start to the year - were broadly higher today across the credit and maturity spectrum. All eleven GICS equity sectors were also higher on the day, led to the upside by the Energy (XLE) and Technology (XLK) sectors. Homebuilders and the broader Hoya Capital Housing Index delivered another day of strong gains on expectations that a less-hawkish Fed will help to contain the upward pressure on mortgage rates.

Real Estate Daily Recap

Storage: ExtraSpace (EXR) surged more than 6% today after reporting very strong results and raising its full-year outlook, commenting that it's "off to an exceptional start in 2022, driven by high occupancy and strong pricing power." EXR now sees FFO growth of 18.3% this year - up 510 basis points from its prior outlook - and raised its same-store NOI growth by 350 bps to 16.5%. Public Storage (PSA) lagged after reporting a similarly strong start to 2022, but reiterated its full-year FFO and NOI growth outlook, likely related to uncertainty over the timing and logistics of the PS Business Parks (PSB) acquisition by Blackstone, which will trigger a special dividend later this year for PSA shareholders for its 41% ownership stake in PSB. We'll hear results this afternoon from Life Storage (LSI) and National Storage (NSA).

Shopping Center: Regency Centers (REG) - which we hold in the REIT Dividend Growth Portfolio - rallied more than 6% after reporting very strong results and raising its full-year outlook, boosting its full-year FFO outlook by 280 basis points and its SSNOI outlook by 130 bps. Whitestone REIT (WSR) rallied 4% after maintaining its outlook but reporting its third-straight quarter of double-digit leasing spreads with blended rent growth of 10% in Q1. Of the nine shopping center REITs to report results thus far, eight have raised their full-year FFO guidance. We'll hear results from Federal Realty (FRT), Urban Edge (UE), and Philips Edison (PECO) on Thursday.

Net Lease: Spirit Realty (SRC) - which we hold in the REIT Focused Income Portfolio - finished flat after maintaining its full-year FFO outlook which calls for FFO growth of 7.3%, which follows a sector-high full-year growth rate of over 12% last year. Broadstone (BNL) gained after reporting a strong start to the year for acquisitions with $210M completed in Q1 while maintaining its full-year FFO growth outlook which calls for growth of 6.9%. Agree Realty (ADC) advanced 2% after increasing its full-year acquisition guidance to $1.5B at the midpoint - up from $1.2B - underscoring the fact that rising rates have done little to hinder the external growth plans across the net lease sector. We'll hear results from Store Capital (STOR) and Realty Income (O) this afternoon.

Apartment: Independence Realty (IRT) slipped more than 4% today despite reporting very strong results and raising its full-year outlook. IRT now projects FFO growth of 25.0% in 2022 - up 360 basis points from its prior outlook - and raised its same-store NOI target to 12.5% - up 150bps. Several mid-cap apartment REITs - including NexPoint Residential (NXRT), Centerspace (CSR), and Apartment Income (AIRC) have been under considerable pressure this week despite the strong earnings results. In our updated Apartment REIT report published on Income Builder this evening, we'll discuss our updated outlook for apartment REITs and a recent position that we've initiated. Veris Residential (VER) will report results this afternoon.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mREITs were broadly higher today after better-than-expected earnings reports and as mortgage-backed bond valuations firmed considerably following the Fed meeting. Starwood (STWD) gained 3% after reporting better-than-expected EPS results and an increase in its Book Value Per Share ("BVPS") of 2.5% while noting that multifamily its largest property type. TPG Real Estate (TRTX) finished higher by about 1% after reporting that its BVPS was roughly flat in Q1. New York Mortgage (NYMT) dipped 2% after reporting that its BVPS declined by 7.2% in Q1. We'll hear results this afternoon from Two Harbors (TWO) and Invesco Mortgage (IVR).

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, the Hoya Capital REIT Preferred Index finished modestly higher today. The preferred issues from Cedar Realty (CDR.PB, CDR.PC) - which have been in focus following CDR's controversial sale to Wheeler (WHLR) earlier this year - saw heavy selling pressure today, declining more than 20% after a notable 40% increase over the past three weeks. REIT Preferreds ended 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of roughly 6.80%.

Economic Data This Week

Employment data highlights another busy week of economic data in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of 380k in April following three-straight months of stronger-than-expected job growth while the unemployment rate is expected to decline to 3.5% from 3.6% in the prior month.

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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.