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  • Alex Pettee, CFA

England Easing • Markets Rebound • Ian Landfall

  • U.S. equity and bond markets rebounded Wednesday after the Bank of England became the first major central bank to reverse course by launching emergency easing measures to quell market instability.

  • Snapping a six-session losing streak and delivering its best day in nearly two months, the S&P 500 advanced 2.0% today while the Mid-Cap 400 and Small-Cap 600 each rallied by 3%.

  • Real estate equities led the rebound after receiving a pounding in recent sessions. The Equity REIT Index gained 2.4% today with all 18 property sectors in positive territory.

  • QT becomes QE? The Bank of England announced that it would buy long-dated government bonds in whatever quantities were needed to address market instability, sending global benchmark interest rates sharply lower.

  • Sunstone Hotel (SHO) rallied 3.5% today after it reinstated its quarterly dividend at $0.05/share - a rate consistent with the company's pre-pandemic dividend amount which was last paid in April 2020. We've now seen 109 REIT dividend hikes this year.

 

Real Estate Daily Recap

U.S. equity and bond markets rebounded Wednesday after the Bank of England became the first major central bank to reverse course by launching emergency easing measures to quell market instability. Snapping a six-session losing streak and delivering its best day in nearly two months, the S&P 500 advanced 2.0% today while the Mid-Cap 400 and Small-Cap 600 each rallied by roughly 3%. Real estate equities led the rebound after receiving a pounding in recent sessions. The Equity REIT Index gained 2.4% today with all 18 property sectors in positive territory while Mortgage REIT Index gained 2.2%. Homebuilders rallied more than 5% as benchmark long-term interest rates pulled back from post-Financial Crisis highs.


Quelling the brutal selling pressure across global bond markets in the wake of the Fed's "jumbo" rate hike last week, the Bank of England became the first major central bank to pump the breaks on the aggressive tightening measures, saying that it would buy long-dated government bonds in whatever quantities were needed to address market instability. The yield on 30-Year UK gilts plunged more than a full percentage point while the U.S. 10-Year Treasury Yield dropped by the most in over a decade. Crude Oil prices advanced more than 4% as Hurricane Ian made landfall in southern Florida as a Category 4 hurricane. Natural gas prices in Europe, meanwhile, continued to surge after Russia said it may cut off supplies via Ukraine, raising the prospects of further economic deterioration across the Eurozone.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Manufactured Housing: With Hurricane Ian making landfall as a destructive Category 4 storm on the Southwest Florida coast today, we'll publish an updated report on the Manufactured Housing REIT sector on the Income Builder Marketplace this evening which will examine the expected impact on Equity Lifestyle (ELS) and Sun Communities (SUI) which each have several dozen communities in the path of the storm. The storm has so far taken a similar path as Hurricane Irma in 2017, which was the most intense hurricane to strike the continental United States since Katrina in 2005. Sun Communities reported total damages of $32M from Irma - $8M net after insurance recoveries representing roughly 1% of its annual FFO - while Equity Lifestyle reported damages of $13M - $4M after recoveries which resulted in a <1% hit to FFO. Revenue losses were relatively muted as the peak demand season for MH and RV communities in Florida begins later in the Fall.

Hotels: What recession? Sunstone Hotel (SHO) rallied 3.5% today after it reinstated its quarterly dividend at $0.05/share - a rate consistent with the company's pre-pandemic dividend amount which was last paid in April 2020. We've now seen 109 REIT dividend hikes this year - the second most on record behind 2021. REITs have been exceedingly conservative in their dividend distribution policy since the pandemic with dividend payout ratios declining to just 65.3% in Q2 - well below the 20-year average of 80% - leaving a cushion to maintain dividends in the event of a deepening recession.

Cannabis: Yesterday we published Cannabis REITs: Too Cheap To Get High. The previously-high-flying cannabis REITs have been slammed this year on concerns over rent payment from their cannabis cultivator tenants, which have been struggling amid a plunge in wholesale cannabis prices. The 30-50% plunge in pot prices comes amid a flood of new entrants to the cannabis retail and cultivation industry and as institutional capital to multi-state operators has driven production efficiencies. Tighter monetary policy and lack of progress in federal legalization have further stifled capital raising activity and led to a handful of defaults from smaller single-state operators, including several REIT tenants, but we've been encouraged by recent updates which suggest that nonpayment issues remain contained and isolated to a handful of smaller single-state operators. Of note, more than two-thirds of the U.S. population now support marijuana legalization, up from roughly 15% in the 1970s and 35% in the early 2000s while roughly 1-in-8 Americans consume cannabis regularly. In 2022, five more states will decide on marijuana legalization ballot measures: Arkansas, Missouri, Maryland, North Dakota, and South Dakota.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs rebounded today following several days of intense selling pressure. Lifted by one of the best daily returns for residential mortgage-backed bonds (MBB) on record, residential mREITs advanced nearly 3% today while commercial mREITs rallied nearly 2%. After the close today, Invesco Mortgage Capital (IVR) - one of the more highly-levered mREITs - cut its quarterly dividend to $0.65/share, becoming the sixth mREIT to lower its dividend this year compared to 13 mREIT dividend hikes.

Economic Data This Week

The busy week of economic data continues on Thursday with the final revision of second-quarter Gross Domestic Product data which is expected to confirm that the U.S. was indeed in a technical recession in the first half of 2022. Finally, on Friday, we'll see another critical inflation report with the Core PCE Index - the Fed's preferred gauge of inflation - which has been one of the early indicators showing signs of peaking price pressures in recent months.

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.

Hoya Capital Research & Index Innovations (“Hoya Capital”) is an affiliate of Hoya Capital Real Estate, a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations provides non-advisory services including market commentary, research, and index administration focused on publicly traded securities in the real estate industry.


This published commentary is for informational and educational purposes only. Nothing on this site nor any commentary published by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. This commentary is impersonal and should not be considered a recommendation that any particular security, portfolio of securities, or investment strategy is suitable for any specific individual, nor should it be viewed as a solicitation or offer for any advisory service offered by Hoya Capital Real Estate. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.


The views and opinions in all published commentary are as of the date of publication and are subject to change without notice. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Any market data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any outlook made in this commentary will be realized.


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