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  • Alex Pettee, CFA

Omicron Arrives • Cannabis REIT IPO • Income Builder Addition

Summary

  • U.S. equity markets slid for the second-straight day, retreating from strong early-session gains on another volatile session following the reported arrival of the first known U.S. case of the Omicron variant.

  • Following declines of 2% yesterday and suffering its worst two-day decline since October 2020, the S&P 500 dipped 1.2% today while the Mid-Cap 400 declined 1.6% and the Small-Cap 600 slipped 1.5%.

  • Real estate equities were broadly lower as well as the Equity REIT Index declined 1.7% today with 18-of-19 property sectors in negative territory while Mortgage REITs declined 1.4%.

  • We'll soon see a fourth exchange-listed cannabis REIT. Chicago Atlantic Real Estate Finance announced plans to raise $106M in its upcoming IPO and will list on NASDAQ under the symbol "REFI."

  • We're excited to announce the addition of Philip Eric Jones to the Hoya Capital Income Builder contributor team, who will further deepen our REIT coverage.

Income Builder Daily Recap

We recently launched Hoya Capital Income Builder - a premier income-focused investment research service through Seeking Alpha Marketplace - that will be the new exclusive home of all of Hoya Capital's investment research. Income Builder focuses on real income-producing asset classes that offer the opportunity for diversification, monthly income, capital appreciation, and inflation hedging. If you're not already on board, give us a try with a completely risk-free two-week trial and take a look around.

U.S. equity markets slid for the second-straight day, retreating from strong early-session gains on another volatile session following the reported arrival of the first known U.S. case of the Omicron variant. Following declines of 2% yesterday and suffering its worst two-day decline since October 2020, the S&P 500 dipped another 1.2% today while the Mid-Cap 400 declined 1.6% and the Small-Cap 600 slipped 1.5%. Real estate equities were broadly lower as well as the Equity REIT Index declined 1.7% today with 18-of-19 property sectors in negative territory while Mortgage REITs declined 1.4%.

While early indications suggest that the new variant may be less virulent than past varieties, investors remained concerned over the government response as selling pressure intensified following the Biden Administration's announcement of additional travel restrictions - two days after suggesting otherwise. Ten of the eleven GICS equity sectors finished lower on the day while the 10-Year Treasury Yield retreated to the lowest levels since late September. Homebuilders and the broader Hoya Capital Housing Index were a bright spot.

Equity REIT Daily Recap

Cannabis: We'll soon see a fourth exchange-listed cannabis REIT - the best-performing property sector since the start of 2018. Chicago Atlantic Real Estate Finance announced plans to offer 6.25 million shares at $16 to $18 per share in a bid to raise about $106 million in its upcoming initial public offering and will list on NASDAQ under the symbol "REFI." Similar to AFC Gamma (AFCG) - which went public in March - REFI will operate as a mortgage REIT and has originated and closed 30 loans totaling approximately $649.0 million to companies operating in the cannabis industry. We're finalizing an exclusive report on Income Builder this evening that will analyze the latest developments and our updated outlook for the cannabis REIT sector.

Shopping Center: Yesterday, we published Shopping Center REITs: Bargain Hunting. Bouncing back from punishing pandemic-related declines, Shopping Center REITs are on the cusp of a full recovery across all critical metrics - but Omicron introduces fresh uncertainty - and also potential opportunity. The retail landscape has improved dramatically this year. Retail sales are on-pace to rise over 15% this year while store closings are on-pace for the lowest level in a decade. Bargains in the shopping center REIT sector were becoming hard to find before the Omicron-driven sell-off. We continue to favor the "essential" grocery-anchored REITs, but see emerging bargains in power center REITs.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs finished lower by 1.2% today while commercial mREITs slipped 1.3%. PennyMac Mortgage (PMT) and Western Asset (WMC) were the leaders on the day while iStar (STAR) and Orchid Island (ORC) lagged. The average residential mREIT now pays a dividend yield of 9.77% while the average commercial mREIT pays a dividend yield of 6.61%.

REIT Preferreds & Capital Raising

Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were lower by 0.41% but remain higher by 8.16% on a price-return basis and roughly 15% on a total return basis. Yesterday, Public Storage (PSA) announced the redemption of its 4.90% Cumulative Preferred Shares, Series E (PSA.PE) on December 30, 2021.

Income Builder Trending Reports

Below we highlight several of the most-read reports over the last 24 hours published by the Income Builder contributor team.

Economic Data This Week

Employment data highlights the economic calendar 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 563K in November following last month's better-than-expected employment growth of 531K and for the unemployment rate to tick lower to 4.5%. In addition to Pending Home Sales data on Monday and Case Shiller Home Price Index data on Tuesday, we'll see Construction Spending data on Wednesday.


We're excited to announce the launch of our new investment research service here on Seeking Alpha - Hoya Capital Income Builder. We've put together a great team of contributors from across the REIT, dividend, and ETF industry, so 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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