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  • Alex Pettee, CFA

Housing Shortage • REIT Dividends • Earnings Recap

  • U.S. equity markets declined Friday - finishing lower for the second-straight week - as ongoing geopolitical tensions and jitters over rising interest rates offset solid earnings and housing market data.

  • Finishing the week with cumulative declines of 1.4%, the S&P 500 declined 0.6% today - and is now 9.1% below recent highs - while the tech-heavy Nasdaq 100 declined 1.1%.

  • Real estate equities mostly-lower today as well despite strong earnings reports as the Equity REIT Index declined 0.6% with 17-of-19 property sectors in negative territory while Mortgage REITs advanced 0.8%.

  • Despite historically low supply levels, Existing Home Sales in the U.S. were stronger-than-expected in January, rising 6.7% from the prior month to a seasonally adjusted annual rate of 6.5 million with home sales increasing in regions across the country.

  • Two more equity REITs and two mortgage REITs hiked their dividends in the past 24 hours: American Homes (AMH), Medical Properties (MPW), Arbor Realty (ABR), and Hannon Armstrong (HASI).

Income Builder Daily Recap

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U.S. equity markets declined Friday - finishing lower for the second-straight week - as ongoing geopolitical tensions and jitters over rising interest rates offset a solid slate of earnings reports and housing market data. Finishing the week with cumulative declines of 1.4%, the S&P 500 declined 0.6% today - and is now 9.1% below its recent highs - while the tech-heavy Nasdaq 100 declined 1.1%. The Small-Cap 600 and Mid-Cap 400 were lower by 0.5% and 0.4%, respectively. Real estate equities mostly-lower today as well despite strong earnings reports as the Equity REIT Index declined 0.6% today with 17-of-19 property sectors in negative territory while the Mortgage REIT Index advanced 0.8%.

Nine of the eleven GICS equity sectors finished lower today with the Technology (XLK) sector once again lagging on the downside. The 10-Year Treasury Yield pulled back another 4 basis points today to close the week at 1.93% after rising to the highest level since late 2019 earlier in the week. Homebuilders and the broader Hoya Capital Housing Index were among the leaders today following better-than-expected Existing Home Sales data, which was achieved despite historically low inventory levels. 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 report published this weekend.

Existing Home Sales in the U.S. were stronger-than-expected in January, rising 6.7% from the prior month to a seasonally adjusted annual rate of 6.5 million with home sales increasing in regions across the country. The strong sales pace was achieved despite a historically low quantity of homes for sale as the inventory of unsold existing homes fell to a new all-time low of 860,000, which is equivalent to just 1.6 months of the monthly sales pace, also an all-time low. Last month, we published Homebuilders: Growth At Very Reasonable Prices which discussed the secular tailwinds that should continue to provide stability for the border housing sector despite rising mortgage rates.

Equity REIT Daily Recap

Today we published REIT Earnings Halftime Report: Buying The REIT Correction. At the halfway point of REIT earnings season, the majority of REITs are now in "correction" territory with several of the highest-flying REITs in "bear market" territory. Consistent with the trends seen across the equity market, REIT earnings have generally been better than expected with the vast majority of REITs topping estimates and raising full-year guidance.

Dividend hikes have been a major theme as nearly 30 REITs have already raised their payouts this year following 130 dividend hikes last year. Two more equity REITs and two mortgage REITs hiked their dividends in the past 24 hours: American Homes (AMH) hiked its payout by 80%, Medical Properties (MPW) raised its payout by 4%, Arbor Realty (ABR) hiked by 3%, and Hannon Armstrong (HASI) raised by 7%.

Mall: Tanger Outlets (SKT) dipped 3% after reporting mixed results, noting that traffic in Q4 actually exceeded 2019 levels and reported that its occupancy rate recovered back to 95% for the first time since 4Q21. Tanger's FFO rose 12.1% for the year but guidance calls for a pull-back in 2022, keeping its FFO 20% below 2019-levels. Earlier in earnings season, Simon Property (SPG) and Macerich (MAC) echoed similar trends with a strong back-half of 2021 and stabilizing fundamentals, but 2022 guidance across the sector has been softer than expected.

Healthcare: Ventas (VTR) rallied 2% today after reporting better-than-expected results yesterday afternoon. Consistent with its senior housing peer Welltower (WELL), VTR reported continued improvement in its senior housing portfolio despite the Omicron surge in late 2021. We've now heard results from nine of the seventeen healthcare REITs. The lab space segment continues to be the upside standout, led by Alexandria Real Estate (ARE) which reported FFO growth of 6.3% in 2021 and expects another 7.7% growth in 2022. Results from skilled nursing REIT Omega Healthcare (OHI) and hospital REIT Medical Properties (MPW) reflected ongoing pandemic-related headwinds.

Data Center: Digital Realty (DLR) slumped 2% today despite a record $156M of annualized bookings in Q4, but pricing power remains soft with renewal rates dipping 3.9% overall including a 14% decline in rental rates on large leases above 1MW. DLR recorded 5.0% FFO growth in 2021 - consistent with its guidance - and sees growth of 4.9% at the midpoint of its initial guidance. Earlier in the week, Equinix (EQIX) reported strong results highlighted by an 8% dividend hike, record bookings volume, and an upbeat outlook for continued high-single-digit FFO growth for 2022. Driven by robust 5% same-store revenue growth, EQIX delivered AFFO growth of 9.5% in 2021 and sees growth of another 7.1% at the midpoint of its 2022 guidance.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, commercial mREITs gained 0.8% today while residential mREITs finished flat. Hannon Armstrong (HASI) soared more than 10% after reporting better-than-expected results which included a 7% dividend increase. Arbor Realty (ABR) was also among the leaders today after reporting strong results and boosted its dividend by 3%. New York Mortgage (NYMT) and Seven Hills (SEVN) each gained about 0.5% today after reporting that their Book Value Per Share ("BVPS") were roughly flat in Q4. Invesco (IVR) was a laggard today after reporting that its BVPS declined 10% during Q4 to $2.91.

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.

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