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  • Alex Pettee, CFA

Fed Ahead • Bear Market • REIT Dividend Increases

  • U.S. equity markets finished lower Monday on another choppy session as investors tracked developments in Ukraine while interest rates jumped to multi-year highs ahead of the Fed's rate hike decision.

  • Following declines of nearly 3% last week and finishing at its lowest level since June 2021, the S&P 500 slipped another 0.7% today while the tech-heavy Nasdaq 100 dipped 1.9%.

  • Real estate equities were lower today as well with the Equity REIT Index declining 0.8% with 17-of-19 property sectors in negative territory while Mortgage REITs declined 1.0%.

  • Another day, another REIT dividend hike. Innovative Industrial Properties (IIPR) - which we own in the Income Builder REIT Dividend Growth Portfolio - hiked its quarterly dividend by 17% to $1.75/share.

  • Aside from the Fed's rate hike decision on Wednesday, the jam-packed economic calendar this week includes PPI data 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 finished lower Monday on another choppy session as investors tracked developments in Ukraine while interest rates jumped to multi-year highs ahead of the Fed's rate hike decision this week. Following declines of nearly 3% last week and finishing at its lowest level since June 2021, the S&P 500 slipped another 0.7% today while the tech-heavy Nasdaq 100 dipped 1.9% into "bear market" territory. Real estate equities were lower today as well with the Equity REIT Index declining 0.8% with 17-of-19 property sectors in negative territory while Mortgage REITs declined 1.0%.


As discussed in our Real Estate Weekly Outlook, all eyes remain on commodities markets and after pushing through $130/barrel last week, WTI Crude Oil (CL1:COM) closed lower by another 6% today amid mounting pessimism over the outlook for global economic growth - particularly in Europe and Asia - which is now also confronting the effects of new COVID lockdowns in several Chinese cities. Indicative of the "stagflation trade," bonds were under pressure as well today with the 10-Year Treasury Yield surging back its highest level since late 2019.



The jam-packed week of economic data in the week ahead kicks off on Tuesday with the Producer Price Index for February, which is expected to show the first double-digit rate of producer cost inflation in history. On Wednesday, we'll see Retail Sales data which is expected to show an uptick in February, buoyed by rising prices. 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 each expected to show steady strength behind the housing industry despite the jump in mortgage rates. The most closely-watched event of the week, however, comes on Wednesday with the Federal Reserve's FOMC Meeting in which the committee is widely expected to announce a 25 basis point rate hike, but investors will be parsing the Fed's comments to evaluate the updated pace of tightening.

Real Estate Daily Recap

Cannabis: Another day, another REIT dividend hike. Innovative Industrial Properties (IIPR) - which we own in the REIT Dividend Growth Portfolio - hiked its quarterly dividend by 17% to $1.75/share, representing a forward yield of roughly 3.75%. Despite a pull-back in early 2022, IIPR has been the best-performing REIT since the start of 2017 and has recorded the fastest rate of FFO and dividend growth. Last week, fellow cannabis REIT AFC Gamma (AFCG) hiked its dividend by 10%. We've now seen 48 REITs hike their dividends so far in 2022, a faster pace than the record year in 2021.

Timber & Farmland: This evening, we will publish an updated report on the Timber & Farmland REIT sector on Hoya Capital Income Builder. 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 in these key commodities will become especially evident. While the significance of Russian oil and natural gas production has been the key focus of politicians and consumers alike as gasoline prices soared to record-highs, Russia is also the world’s largest exporter of lumber - primarily softwoods - and the seventh-largest exporter of forestry products. Meanwhile, earning its name as the "Breadbasket of Europe," more than a quarter of the world’s wheat exports come from Russia and Ukraine. We'll discuss key themes, recent earnings results, and our updated outlook.

Shopping Center: Urstadt Biddle (UBA) was among the better-performing REITs today after reporting solid results in its fiscal Q1 results last Friday afternoon, recording a 6.1% increase in same-store NOI and a 70 basis point increase in occupancy rates to 92.6%. Last Friday, 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.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs finished lower by 1.4% today while commercial mREITs slipped 1.6%. Mortgage REIT earnings season wraps up next week with results from Cherry Hill (CHMI) and Lument Finance (LFT) on Tuesday. The average residential mREIT pays a dividend yield of 11.34% while the average commercial mREIT pays a dividend yield of 7.67%.

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.