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  • Alex Pettee, CFA

Eyes On Russia • REIT Earnings Updates • Week Ahead

  • U.S. equity markets were mixed Monday in a whipsaw session as investors parsed conflicting reports over the likelihood and market ramifications of a Russian incursion into Ukraine.

  • Following a decline of 1.8% last week, the S&P 500 declined 0.4% today while the tech-heavy Nasdaq 100 finished fractionally higher but remains 14% below its recent highs.

  • Real estate equities were laggards ahead of a busy week of earnings reports as the Equity REIT Index declined 0.9% today with all 19 property sectors in negative territory.

  • Net lease REIT American Finance Trust (AFIN) provided a business update noting that it completed the first tranche a $1.3B acquisition of 79 shopping centers from CIM Real Estate Finance (CMCT). AFIN will change its name and ticker tomorrow to Necessity Retail REIT (RTL).

  • The jam-packed week of economic data includes the Producer Price Index report on Tuesday, Retail Sales and Homebuilder Sentiment on Wednesday, Housing Starts on Thursday, and Existing Home Sales on Friday.

Income Builder Daily Recap

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U.S. equity markets were mixed Monday in a whipsaw session as investors parsed conflicting reports over the likelihood and market ramifications of a Russian incursion into Ukraine. Following a decline of 1.8% last week, the S&P 500 declined 0.4% today while the tech-heavy Nasdaq 100 finished fractionally higher but remains 14% below its recent highs. The Small-Cap 600 and Mid-Cap 400 were each off by 0.3% today. Real estate equities were laggards ahead of a busy week of earnings reports as the Equity REIT Index declined 0.9% today with all 19 property sectors in negative territory while the Mortgage REIT Index declined 1.1%.

As discussed in our Real Estate Weekly Outlook, volatility has returned over the past several sessions amid amplified tensions on the Russia/Ukraine border and hotter-than-expected inflation data last week as investors are now pricing in 60% odds of a 50 basis point "double rate hike" at the next FOMC meeting in March. The 10-Year Treasury Yield climbed back above 2.0% today as WTI Crude Oil prices continued to march closer to $100. Ten of the eleven GICS equity sectors were lower on the day with the red-hot Energy (XLE) sector lagging on the downside today.

The jam-packed week of earnings reports and economic data kicks off on Tuesday with the Producer Price Index for January, which is expected to finally show some deceleration in inflation after reaching the highest rate on record in December. On Tuesday, we'll see Retail Sales data which is expected to show an uptick in January after a disappointing December. The busy slate of housing data kicks off on Wednesday with the Homebuilder Sentiment. On Thursday, we'll see Housing Starts and Building Permits and on Friday we'll see Existing Home Sales data which are expected to show continued momentum behind the housing industry.

Equity REIT Daily Recap

As discussed in our REIT Earnings Preview: Dividend Hikes And 2022 Outlook, Highlights of this week's busy earnings slate include Spirit Realty (SRC) and Kite Realty (KRG) on Monday, Invitation Homes (INVH) and Welltower (WELL) on Tuesday, Independence Realty (IRT) and STAG Industrial (STAG) on Wednesday, and Tanger Outlets (SKT), Digital Realty (DLR.PK), and Ventas (VTR) on Thursday. We'll continue to provide real-time coverage with our Earnings QuickTake posts for Hoya Capital Income Builder members and will publish follow-up articles summarizing our thoughts and analysis throughout earnings season.

Net Lease: American Finance Trust (AFIN) provided a business update in which it noted that it completed the first tranch of a previously-announced $1.3B acquisition of 79 open-air shopping center properties from CIM Real Estate Finance (CMCT). The initial phase consisted of 44 open-air shopping centers which it acquired for $547M and AFIN noted that it expects to acquire the remaining properties in the transaction by the end of 1Q22. The company expects the transaction to be accretive immediately to FFO. Separately, the company's confirmed that it will change its name to Necessity Retail REIT beginning tomorrow and trade under ticker RTL. Notable net lease earnings results this week include Spirit Realty (SRC) this afternoon and Gladstone Commercial (GOOD) on Tuesday.

Apartment: This evening, we'll publish our updated outlook on the red-hot apartment REIT sector as an exclusive report for Hoya Capital Income Builder members. Zillow (Z) published a report last week that showed that rent growth continues to set new all-time highs in early 2021, metrics that were confirmed by the seven apartment REITs that have reported Q4 results showing rent growth acceleration across essentially all markets across the country. Residential REIT earnings reports have been extremely impressive across the board with double-digit NOI and FFO growth expected in 2022 from each of the seven apartment REITs. We'll hear results from a pair of apartment REITs over the next two days - NexPoint Residential (NXRT) and Independence Realty (IRT).

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs declined 1.3% today while commercial mREITs slipped 0.7%. Highlights of this week's earnings calendar include Ares Commercial (ACRE) on Tuesday, Hannon Armstrong (HASI), NexPoint Real Estate (NREF), and Chimera (CIM) on Thursday, and Arbor Realty (ABR) on Friday. The average residential mREIT pays a dividend yield of 10.68% while the average commercial mREIT pays a dividend yield of 7.50%.

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.