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  • Alex Pettee, CFA

REIT Dividend Hike • 12% Rent Rise • Inflation Ahead

  • U.S. equity markets were broadly lower Monday- dragged down by a sharp sell-off among technology and other stocks- as the "bond rout" continued ahead of a jam-packed week of inflation data.

  • Following declines of 1% last week, the S&P 500 slid 1.6% today while the tech-heavy Nasdaq 100 dipped more than 2%. Mid-Caps and Small-Caps - along with Homebuilders -were notable outperformers.

  • Data provider Moody's Analytics reported that national effective apartment rents soared 12.7% on a year-over-year (YoY) basis in Q1 2022 - a record-high - while the vacancy rate declined to 4.7%,.

  • Tanger Outlets (SKT) hiked its dividend by 9.6% today, declaring a $0.20/share quarterly dividend, representing a forward yield of 4.7%. We've now seen 55 equity REITs raise their dividend this year along with 7 mortgage REITs.

  • Inflation data highlights the busy slate of economic data in the week ahead. On Tuesday, the BLS will report the Consumer Price Index and we'll see the Producer Price Index on Wednesday, each of which are expected to show the highest rate of inflation in at least four decades.

Income Builder Daily Recap

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U.S. equity markets were broadly lower Monday - dragged down by a sharp sell-off among technology and other stocks - as the "bond rout" continued ahead of a jam-packed week of inflation data. Following declines of 1% last week, the S&P 500 slid 1.6% today while the tech-heavy Nasdaq 100 dipped more than 2%. Mid-Caps and Small-Caps were notable outperformers, however, with declines of 0.3% and 0.8%, respectively. Real estate equities were mostly lower today as the Equity REIT Index declined 1.1% with 15-of-19 property sectors in negative territory while Mortgage REITs gained 0.1%.

As discussed in our Real Estate Weekly Outlook, fixed income securities across the credit and maturity spectrum remained under pressure amid a historically-weak start to the year. The 10-Year Treasury Yield rose to its highest level since May 2019 at 2.78% while the 2-Year Treasury Yield also remained near three-year highs at 2.51%. The Energy (XLE) sector lagged amid skepticism over the demand outlook following a full-scale COVID lockdown in Shanghai as Crude Oil (CL1:COM) prices dipped 3%, and is now less than 5% above the levels before the Russian invasion of Ukraine. Homebuilders and the broader Hoya Capital Housing Index - which have been under pressure this year - were among the best-performing segments today.

Inflation data highlights the busy slate of economic data in the week ahead. On Tuesday, the BLS will report the Consumer Price Index for March which is expected to show the highest rate of consumer inflation since 1982 at 8.4% while the Producer Price Index on Wednesday is expected to show a second-straight month of double-digit inflation rates on producers. We'll see Michigan Consumer Sentiment on Thursday which is expected to show a continued free-fall in consumer confidence in April that some analysts expect could dip below the depths of the Great Financial Crisis when the index bottomed at 55.3 in November 2008. On Thursday, we'll also see Retail Sales data for March, which investors will be watching for early signs of waning consumer spending. Equity markets will be closed on Friday in observation of the Easter holiday while bond markets will close early.

Real Estate Daily Recap

Mall: Tanger Outlets (SKT) was among the performance leaders today after it hiked its dividend by 9.6% by declaring a $0.20/share quarterly dividend, representing a forward yield of 4.7%. For context, in its final quarter before the pandemic, SKT paid a dividend of $0.3575. In its most recent earnings report, Tanger reported that its FFO rose 12.1% for full-year 2021, but guidance calls for a modest pull-back in 2022, keeping its FFO 20% below 2019-levels. We've now seen 55 equity REITs raise their dividend this year along with 7 mortgage REITs. Three REITs have reduced their dividends - all small mortgage REITs - ORC, LFT, and WMC.

Apartment: Data provider Moody's Analytics reported that national effective apartment rents soared 12.7% on a year-over-year (YoY) basis in Q1 2022 - a record-high - while the vacancy rate declined to 4.7%, down from 4.8% in Q4 which "signaled further strength in the sector." The report noted that "while new construction is picking up the pace, a supply and demand imbalance remains, resulting in further market tightness and further upward pressure on rents." Moody's expects rents to continue to climb in the first-half of 2022 before showing signs of slowing in the second half, but to remain in the 5-10% range throughout the year.

Healthcare: This weekend, we published our quarterly report (linked here) on the Healthcare REIT sector with discussed our updated outlook and how we're allocating to the sector. Healthcare REITs - which were the weakest-performing property sector in 2021 - have been one of the top-performing REIT sectors in early 2022, lifted by an improving fundamental outlook for senior housing. Encouragingly, the Omicron COVID wave merely slowed- but didn't derail- the demand recovery. Staffing shortages have been the more-critical issue of late, and some operators are faring better than others. We also analyzed the latest quarterly report from the National Investment Center for Seniors Housing & Care ("NIC") published last Thursday.

Storage: Last week, we published Storage REITs: Times Are 'A-Changing. Self-storage REITs - which delivered the most impressive rebound of any property sector throughout the pandemic - have built on their gains in early 2022 following a jaw-dropping 80% surge last year. Stumbling into the coronavirus pandemic with challenged fundamentals and an outlook for near-zero growth amid oversupply challenges, self-storage demand soared over the past year, powering record occupancy increases, and rent hikes. Storage demand is closely-correlated with housing market turnover: specifically home sales and rental turnover. The surge in mortgage rates this year appears likely to slow turnover and temper storage demand. In the report, we discussed how we're allocating to the sector and our updated Price Targets.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, commercial mREITs were lower by 0.2% today while residential mREITs declined 0.4%. In our Weekly Outlook, we noted how mortgage-backed securities are certainly not immune from the broader sell-off across the bond markets. We look at the iShares MBS ETF (MBB) and the iShares CMBS ETF (CMBS) as a gauge of the un-levered performance of residential and commercial MBS. Roughly in line with the rest of the bond market with similar maturities, these funds are in the midst of one of the more significant sell-offs of the post-GFC period - each lower by roughly 7% this year. After the close today, AGNC Investment (AGNC) held its dividend steady at $0.12/month.

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, the Hoya Capital REIT Preferred Index finished lower by 0.77% today. REIT Preferreds ended 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now 186 REIT-issued exchange-listed preferred and debt securities with an average current yield of 6.57%. In the capital markets today, Global Net Lease (GNL) announced that it replaced its existing credit facility with a new, $1.45 billion corporate revolving credit facility that has a 4.5-year term and improved pricing that is 15 basis points lower than the facility it replaced.

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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.