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  • Alex Pettee, CFA

Logistics M&A • Simon Hikes Dividend • Crypto Crash

  • U.S. equity markets finished mostly lower Tuesday in another volatile session as an early-session rebound was stymied by continued selling pressure ahead of pivotal inflation data over the next two days.

  • Stabilizing after its worst three-day slide since the March 2020 pandemic lows, the S&P 500 advanced 0.2% while the tech-heavy Nasdaq 100 gained 1.2% but remains 25% below its recent highs.

  • Real estate equities were laggards today - giving back their YTD outperformance relative to the major benchmarks - as the Equity REIT Index declined 1.8% today while Mortgage REITs finished flat.

  • Another day, another blockbuster REIT M&A deal. Duke Realty (DRE) - which we hold in the REIT Dividend Growth Portfolio - rallied 4% after Prologis (PLD) proposed to acquire Duke in an all-stock deal. Duke rejected two prior offers and hasn't yet responded to the latest bid.

  • Mall REIT stalwart Simon Property (SPG) advanced nearly 1% today after reporting solid results yesterday afternoon, raising its full-year guidance by 60 basis points and hiking its dividend for the fourth time in the past year.

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U.S. equity markets finished mostly lower Tuesday in another volatile session as an early-session rebound was stymied by continued selling pressure ahead of pivotal inflation data over the next two days. Stabilizing after its worst three-day slide since the March 2020 pandemic lows, the S&P 500 advanced 0.2% today while the tech-heavy Nasdaq 100 gained 1.2% but remains 25% off its recent highs. The Mid-Cap 400, Small-Cap 600, and DOW each slid for a fourth-straight day. Real estate equities were laggards today - giving back their YTD outperformance relative to the major benchmarks - as the Equity REIT Index declined 1.8% today with 14-of-19 property sectors in negative territory while Mortgage REITs finished flat.

While investors have so far shied away from "buying the dip" across equity markets, we have seen notable dip-buying in bond markets this week as the 10-Year Treasury Yield pulled back another 9 basis points to below 3.0% while the 2-Year Treasury Yield remained roughly flat at 2.61%. Worries over slowing global growth kept downward pressure on energy prices for a second-straight session with Crude Oil prices dipping back below $100 for the first time in a month. Elsewhere, Bitcoin continued to deflate - briefly slipping below $30,000 - consistent with the broader exodus out of highly speculative asset classes including SPACs, NFTs, and other crypto-related tokens.

Real Estate Daily Recap

Industrial: Another day, another blockbuster REIT M&A deal. Duke Realty (DRE) - which we hold in the REIT Dividend Growth Portfolio - rallied 4% after Prologis (PLD) proposed to acquire Duke in an all-stock deal valued at $61.68/share based on yesterday's closing price - a roughly 29% premium. Prologis has been actively pursuing Duke for at least six months and Duke hasn't indicated that it's willing to accept the offer which follows two rejected proposals - the first one coming on November 29th and then again on May 3rd. Under the terms of the proposal, Duke Realty stockholders would receive 0.466 shares of Prologis common stock for each share of Duke Realty common stock they own and would own 19% in the combined company.

Today, we published our real estate Earnings Recap: REITs Are Suddenly Cheap. REIT earnings results were generally better-than-expected with roughly 85% of equity REITs beating consensus FFO estimates while nearly 70% of the REITs that provide forward guidance raised their full-year outlook. Despite the strong slate of earnings reports across most property sectors, however, performance trends continue to be dominated by macroeconomic factors and the broader sell-off across essentially all asset classes. The steep sell-off combined with upward earnings revisions and dividend hikes has pulled valuations to the "cheapest" level since 2020 and swelled the average dividend yield to the highest since 2018.

Malls: Simon Property (SPG) advanced nearly 1% today after reporting solid results yesterday afternoon, raising its full-year guidance by 60 basis points and hiking its dividend for the fourth time in the past year. For SPG, the full-year target would bring its FFO back to within 3% of pre-pandemic-levels - substantially ahead of its peers. Simon reported a 250 basis point year-over-year increase in occupancy - eclipsing that of Macerich (MAC) which reported a 230 bps improvement, but trailing that of Tanger Outlets (SKT) which reported a 260 bps increase, and Pennsylvania REIT (PEI) which reported a 430 basis point improvement. While SPG no longer provides leasing spreads, earnings call commentary suggested that the pricing environment has improved with David Simon noting, "We are in a better position today to negotiate a fair deal for us than we were the last couple years."

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were mostly-higher today. Cherry Hill Mortgage (CHMI) rallied more than 5% today after reporting better-than-expected results as its 15.1% decrease in Book Value Per Share ("BVPS") wasn't as steep as analysts expected. Broadmark Realty (BRMK) slumped more than 6% today after reporting results that were shy of estimates with its distributable earnings per share declining to $0.17 from $0.18 in the prior quarter. Lument Finance (LFT) slumped 5% after it reported a BVPS decline of more than 17% in Q1. We'll hear results this afternoon from Granite Point (GPMT).

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, the Hoya Capital REIT Preferred Index finished higher by 0.56% today. REIT Preferreds ended 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of roughly 6.80%

Economic Data In The Week Ahead

Inflation data and commentary from Fed members highlight the busy slate of economic data in the week ahead. On Wednesday, the BLS will report the Consumer Price Index which may potentially reveal that the fastest pace of year-over-year increases is finally behind us as both the headline and Core CPI is expected to show a cooldown in April to 8.1% and 6.0%, respectively. Similar themes are expected in the Producer Price Index report on Thursday is expected to show a 10.7% increase for the headline PPI, down from 11.2% in the prior month. On Friday, we'll also get our first look at Michigan Consumer Sentiment for May to see if the unexpected rebound in confidence seen last month can be sustained or if it resumes the downward trend that began last August amid persistent anxiety about inflation.

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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.