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  • Alex Pettee, CFA

Market Whipsaw • Jobs Day Ahead • Earnings Updates

  • U.S. equity markets reversed their post-Fed rally with steep declines Thursday as benchmark Treasury yields surged back to three-year highs ahead of a closely-watched jobs report on Friday.

  • Snapping a three-session winning streak and retreating from its best day of gains since mid-2020, the S&P 500 slid 3.6% today while the tech-heavy Nasdaq 100 declined nearly 5%.

  • Skilled nursing REIT Sabra Healthcare (SBRA) surged after reporting better-than-expected results and improvements in rent collection issues from several troubled operators, echoing an earlier report from Omega Healthcare (OHI).

  • Mortgage REIT Two Harbors (TWO) gained today after it reported that its Book Value Per Share declined just 2.9% in Q1 to $5.53 as strength in its MSR portfolio helped to offset declines in its Agency portfolio.

  • Veris Residential (VRE) - formerly office REIT Mack Cali - slumped more than 8% after the NYC-focused REIT reported mixed results as strong rent growth was offset by higher-than-expected expenses related to its shift from an office REIT to a pure-play multifamily REIT.

Income Builder Daily Recap

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U.S. equity markets reversed their post-Fed rally with steep declines Thursday as benchmark Treasury yields surged back to three-year highs ahead of a closely-watched jobs report on Friday. Snapping a three-day winning streak and retreating from its best day of gains since mid-2020, the S&P 500 slid 3.6% today while the tech-heavy Nasdaq 100 declined nearly 5% - its worst day since September 2020. Real estate equities were among the better-performers today but still recorded broad-based declines with the Equity REIT Index pulling back by 2.6% today with all 19 property sectors in negative territory while Mortgage REITs declined by 2.4%.

There were few places to hide from the selling pressure today as all eleven GICS equity sectors were lower by at least 1% with the Consumer Discretionary (XLY) and Technology (XLK) sectors seeing the sharpest declines while domestic-focused equity sectors generally held their ground as the US Dollar Index surged back to its strongest level in 20-years. Giving back all of yesterday's gains, fixed income securities across the credit and maturity spectrum were sharply lower today as the 10-Year Treasury Yield jumped 15 basis points to 3.07% while the 2-Year Treasury Yield climbed back above its pre-Fed level of 2.70%.

Real Estate Daily Recap

Healthcare: Skilled nursing REIT Sabra Healthcare (SBRA) surged 9% after reporting better-than-expected results and improvements in rent collection issues from several troubled SNF operators, echoing the theme earlier in the week from Omega Healthcare (OHI). SBRA reported that it collected 99.5% of rents through the end of April - including 100% of Avamere’s rent under its previous and amended leases - and commented that it "does not anticipate additional material lease restructurings." SNF occupancy rates improved meaningfully throughout Q1 as "headwinds related to the Omicron variant abated." We'll hear results this afternoon from Ventas (VTR), CareTrust (CTRE), and Healthcare Trust of America (HTA).

Net Lease: Store Capital (STOR) - which we hold in the REIT Focused Income Portfolio - reported solid results and raised its full-year FFO and acquisition target after setting a company record with $513M in Q1 acquisitions. STOR now sees FFO growth of 8.0% - up 70 basis points from its prior outlook and expects to acquire $1.4B in assets for the year. Realty Income (O) was also among the better performers today after it reaffirmed its 2022 earnings guidance which calls for FFO growth of 8.8%. Elsewhere, EPR Properties (EPR) was an upside standout after reporting a continued recovery in its experience-focused portfolio and raising its FFO growth target by 210 basis points to 37.1%. Global Net Lease (GNL) and Necessity Retail (RTL) each reported in-line results but do not provide full-year guidance.

Storage: Storage REITs were under pressure today despite a pair of very strong "beat and raise" reports. Life Storage (LSI) lagged despite raising its full-year FFO growth outlook to 20.1% - up 220 basis points - and raising its NOI growth outlook to 13.5% - up 150 basis points. Elsewhere, National Storage (NSA) raised its full-year target to 25.0% - up 510 basis points from last quarter - and boosted its full-year NOI growth outlook to 19.8% - up 80 basis points. While storage REITs snapped their four-quarter streak of perfect "beat and raise" results across all five REITs, first-quarter results were nonetheless impressive and indicated that demand has shown few signs of cooling despite the slowdown in home sales in early 2022.

Shopping Center: Results from shopping center REITs continued their positive trend and of the twelve shopping center REITs to report results thus far, ten have raised their full-year FFO guidance. Federal Realty (FRT) finished lower by about 4% today even after it raised its full-year FFO growth outlook to 6.8% - up 180 basis points - and raised its NOI growth outlook to 4.3% - up 30 basis points. RPT Realty (RPT) dipped more than 5% today despite raising its full-year FFO growth outlook to 8.4% - up 50 basis points - and boosting its NOI growth outlook to 3.3% - up 30 basis points. We'll hear results this afternoon from Philips Edison (PECO)

Apartment: As discussed in a new Apartment REIT report published on Income Builder last night, apartment REITs continue to report stellar earnings results with record-setting rent growth near 20% while simultaneously managing to increase occupancy rates to record-highs and reduce turnover rates to record-lows. Higher mortgage rates have simply shifted the robust housing demand from the ownership market back towards the rental markets. Supply growth has been insufficient to meet the robust demand. We continue to prefer the faster-growing Sunbelt-focused REITs over their coastal-focused peers. Veris Residential (VRE) - formerly office REIT Mack Cali - slumped more than 8% after the NYC-focused REIT reported mixed results as strong rent growth was offset by higher-than-expected expenses related to its shift from an office REIT to a pure-play multifamily REIT.

Mall: Pennsylvania REIT (PEI) was among the better performers today after the troubled mall REIT kicked off the mall REIT earnings slate with decent results. PEI recorded same-store NOI growth of 16.0% in Q1 and an increase in Core Mall Occupancy to 92.7% - up 500 basis points from last year. Average renewal spreads improved from -11.0% last quarter to +3.8% in Q1. PEI also made notable advances in its capital-raising efforts through asset sales and is now underway with $275M in transactions and anticipates closing approximately $109 million in sales prior to June 30, 2022. We'll hear results from Tanger Outlets (SKT) this afternoon while Simon Property (SPG) and Macerich (MAC) report next week.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mREITs remain among the best-performing sectors this week following solid earnings results. Two Harbors (TWO) gained 1% after it reported that its Book Value Per Share ("BVPS") declined just 2.9% in Q1 to $5.53 as strength in its MSR portfolio helped to offset declines in its Agency portfolio. A pair of Agency-focused mREITs reported steeper BVPS declines, however, as Chimera (CIM) finished lower after reporting that its BVPS declined 14.3% in Q1 to $10.15 while Invesco Mortgage (IVR) slid after it reported that its BVPS dipped 28.5% in Q1 to $2.08. We have a busy afternoon of mREIT earnings including results from Ready Capital (RC), PennyMac (PMT), Ellington Financial (EFC), ACRES Commercial (ACR), and Western Asset (WMC).

Economic Data This Week

Employment data highlights another busy week of economic data in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of 380k in April following three-straight months of stronger-than-expected job growth while the unemployment rate is expected to decline to 3.5% from 3.6% in the prior month.

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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.