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  • Alex Pettee, CFA

Job Growth • Nuclear Fears • Oil's Historic Week

  • U.S. equity markets finished lower Friday as turmoil in Ukraine intensified with the Russian seizure of a nuclear powerplant, but stronger-than-expected job growth helped to allay some concerns over potential stagflation.

  • Ending another choppy week with cumulative declines of 2.3%, the S&P 500 slipped 0.7% today while the tech-heavy Nasdaq 100 declined by 1.5%. WTI Crude Oil surged another 7%.

  • Buoyed by a decline in long-term interest rates, real estate equities were among the outperformers today and on the week. Equity REITs advanced 0.5% today and 1.1% on the week.

  • The U.S. economy added 678k jobs in February - well above expectations of roughly 400k - as the U.S. labor market remains a notable source of strength amid a myriad of concerns over inflation and geopolitics.

  • ACRES Commercial Realty (ACR) surged nearly 10% today after reporting solid results, noting that it recorded a 5% increase in its Book Value Per Share ("BVPS") in Q4 to $23.87 driven and expanding its share repurchase program.

Income Builder Daily Recap

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U.S. equity markets finished lower Friday as turmoil in Ukraine intensified with the Russian seizure of a nuclear powerplant, but stronger-than-expected job growth helped to allay some concerns over potential stagflation. Ending another choppy week with cumulative declines of 2.3%, the S&P 500 slipped 0.7% today while the tech-heavy Nasdaq 100 declined by 1.5%. WTI Crude Oil prices surged another 7% to cap off a historic week of commodity gains. Buoyed by a decline in long-term interest rates, real estate equities were among the outperformers today and on the week as the Equity REIT Index advanced 0.5% today and 1.1% on the week.

Capping off a historic week of commodity price gains, the Energy (XLE) sector was again the leader among the 11 GICS equity sectors today while the Financials (XLF) sector lagged as the 10 Year Treasury Yield plugged more than 25 basis points on the week as investors around the world piled into safe-haven U.S. Treasuries. 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.

Labor Market Remains Resilient

The Bureau of Labor Statistics reported this morning that the U.S. economy added 678k jobs in February - well above expectations of roughly 400k - as the U.S. labor market remains a notable source of strength amid a myriad of concerns over inflation and geopolitics. The upward surprise followed a stronger-than-expected ADP Payrolls report earlier in the week which showed job gains of 475k in February and better-than-expected Initial Jobless Claims data, which declined to the lowest level of 2022. Interestingly, average hourly earnings rose just 1 cent/hour in February or 0.03%, far short of the 0.5% gain expected and well shy of the 0.6% month-over-month increase in inflation in the most recent CPI report.

In February, the unemployment rate edged down to 3.8%, and the number of unemployed persons edged down to 6.3 million. In February 2020, prior to the coronavirus (COVID-19) pandemic, the unemployment rate was 3.5%, and the number of unemployed persons was 5.7 million. Job growth was widespread over the month, led by gains in leisure and hospitality, professional and business services, health care, and construction. Construction added 60,000 jobs in February with increases in both residential (+24,000) and nonresidential (+20,000) components. Construction employment, however, is still slightly below (-11,000) its February 2020 level.

Real Estate Daily Recap

Data Center: Today, we published Data Center REITs: Tech Turbulence. Data Center REITs- a perennial performance leader in the REIT sector- are in "bear market" territory for the third time this decade as technology stocks have lost their luster in early 2022. Data center demand and fundamentals remain resilient and were remarkably unaffected by the pandemic and subsequent reopenings, but that's precisely the issue as investors have rotated into more pro-cyclical sectors. The complexion of the sector changed dramatically after two REITs were taken private while COR was acquired by AMT, but Digital Bridge and Iron Mountain have matured into serious players. In the report, we discussed our updated outlook and recommendations for the sector.


Today, we published our State of the REIT Nation report as an exclusive report for Income Builder members. The "REIT Recovery" from the pandemic is essentially complete as FFO levels are back to pre-pandemic levels. Dividend payouts have lagged, however, setting the stage for significant growth in 2022. While REITs have pulled back into "cheap" territory in early 2022, REITs benefited from premium valuations over the past year which helped to jump-start external growth and awaken animal spirits. We highlighted how REIT balance sheets look far more like a typical operating company than the highly leveraged holding companies of yesteryear, which served them well during the pandemic-related volatility and should be a cushion to buffer the impact from the geopolitical issues in early 2022.

Earlier this week, we published our REIT Earnings Recap: REITs Are Now Cheap. More than 200 REITs have reported earnings results over the past five weeks, providing critical information on the state of the real estate industry amid the extreme volatility in early 2022. Dividend hikes have been among the prevailing themes of earnings season with 40 REITs already raising their payouts so far in 2022, outpacing the record-setting pace seen last year. The thesis for maintaining an overweight allocation to U.S. real estate equities in a balanced portfolio remains especially compelling given their minimal international exposure and inflation-hedging attributes.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, commercial mREITs advanced 0.3% today while residential mREITs finished lower by 1.0%. ACRES Commercial Realty (ACR) surged nearly 10% today after reporting solid results, noting that it recorded a 5% increase in its Book Value Per Share ("BVPS") in Q4 to $23.87 driven and expanding its share repurchase program. Great Ajax (AJX) dipped 4% today after reporting a mixed quarter in Q4, noting that its BVPS declined 0.5% in Q4 to $15.92. The average residential mREIT pays a dividend yield of 11.29% while the average commercial mREIT pays a dividend yield of 7.50%.

Economic Data This Week

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.

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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