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  • Alex Pettee, CFA

REIT Dividend Hikes • Fed Goes Quiet • Stocks Snap Skid

  • U.S. equity markets were broadly-higher Friday - a third day of gains that snapped a three-week losing streak - as the Fed entered its "quiet period" ahead of its September meeting.

  • Snapping a three-week skid with cumulative gains of 3.6%, the S&P 500 advanced 1.5% today while the tech-heavy Nasdaq 100 gained 2.2% to push its weekly gains to 4%.

  • Real estate equities were among the leaders throughout the week despite the early-week surge in rates. Pushing its weekly gains to nearly 4.5%, the Equity REIT Index advanced 1.1% today.

  • Another day, another wave of REIT dividend increases. Casino REIT VICI Properties (VICI) boosted its quarterly dividend by 8% and office REIT Kilroy Realty (KRC) raised its quarterly payout by 4%. Equity Commonwealth (EQC) declared a $1.00/share special dividend.

  • Shopping Center REIT Urstadt Biddle (UBA) gained about 1% after reporting solid third-quarter earnings results highlighted by a 7.1% increase in renewal spreads and a 20 basis point increase in its occupancy rate to 92.1%.

 

Real Estate Daily Recap

U.S. equity markets were broadly-higher Friday - a third-day of gains that snapped a three-week losing streak - as the Federal Reserve entered its "quiet period" ahead of its September 21st meeting. Snapping a three-week skid with cumulative gains of 3.6%, the S&P 500 advanced 1.5% today while the tech-heavy Nasdaq 100 gained 2.2% to push its weekly gains to 4%. Real estate equities were among the leaders throughout the week despite the early-week surge in interest rates. Pushing its weekly gains to nearly 4.5%, the Equity REIT Index advanced by 1.5% today with 16-of-18 property sectors in positive territory while the Mortgage REIT Index rallied 1.7%.

Rebounding from eight-month lows, Crude Oil prices rallied more than 4% after Russian President Vladimir Putin threatened to halt oil and gas exports to Europe if price caps are imposed. The 10-Year Treasury Yield ticked higher by 3 basis points today to close at 3.32% - its second highest end-of-week closing level since 2007 - while the US Dollar Index pulled back from two-decade highs. All eleven GICS equity sectors finished higher today, led on the upside by the Communications (XLC) and Energy (XLE) sectors while Homebuilders and the broader Hoya Capital Housing Index were also among the upside leaders. 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 this weekend.


Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Another day, another wave of REIT dividend increases. Casino REIT VICI Properties (VICI) boosted its quarterly dividend by 8% to $0.39/share - following its recent pattern of hiking its dividend in the third quarter of each year since its IPO. Office REIT Kilroy Realty (KRC) raised its quarterly payout by 4% to $0.54/share - just the sixth office REIT to raise its payout this year. Equity Commonwealth (EQC), meanwhile, declared a $1.00/share special dividend. We've now seen 105 REIT dividend hikes so far this year while six REITs have cut their dividends. As discussed this week in 100 REIT Dividend Hikes - our quarterly State of the REIT Nation Report - property-level fundamentals have been quite strong - and strengthening - for most property sectors in recent quarters despite the broader economic slowdown this year. Dividends per share rose by 15.1% in Q2 from last year, but total dividend payouts remain roughly 13% below pre-pandemic levels as many REITs have been exceedingly conservative in their dividend policies.

Shopping Center: Urstadt Biddle (UBA) - which we own in the REIT Focused Income Portfolio - gained about 1% after reporting solid third-quarter earnings results highlighted by a 7.1% increase in renewal spreads and a 20 basis point increase in its occupancy rate to 92.1%. The company noted that its "earnings and FFO have returned to pre-pandemic levels and there is still room to grow as we fill our vacancies. Our collection rate on rents billed has returned to pre-pandemic levels" while highlighting that 87% of its properties are anchored by grocery stores, wholesale clubs or pharmacies. As noted in our recent Shopping Center REIT report Winning The Last Mile, fundamentals are now as strong – if not stronger - in the strip center sector than before the pandemic as occupancy rates climbed to the highest level since early 2015 in the most recent quarter while rental rates continue to accelerate.

Single-Family Rentals: Today we published Single Family Rental REITs: Renting the American Dream. One of the best-performing property sectors over the past quarter, SFR REITs have been beneficiaries of surging mortgage rates, which has made renting single-family homes a relative bargain. Single-family rents rose at the fastest pace on record through mid-2022, an elevated pace that has staying-power given the significant 'embedded' rent growth resulting from below-market renewal offers as SFR REITs have "throttled" rent hikes on existing tenants. Cooling home price appreciation and tightening credit conditions have prompted many smaller SFR investors to pull back, providing a more favorable external growth environment for SFR REITs.

Land REITs: Earlier this week, we published Land REITs: Hedge Inflation - And Chaos. While still outperforming the REIT Index this year, timber and farmland REITs have pulled back amid cooling inflation expectations, slumping global commodity demand, and regional weather complications. As the Russia-Ukraine conflict drags on, significant global market share gains are accruing to North American producers of the disrupted agricultural products - notably lumber and grains - supporting land values. "Feast or famine" has been a theme in the farmland sector of late. Despite severe drought conditions in the West, a productive growing season in the Midwest and South has raised aggregating U.S. farm incomes to near-record highs this year. For timber REITs, lumber prices have moderated back towards pre-pandemic levels as slumping home construction demand resulting from rising rates follows a record year of profitability. The rate-driven cooldown, however, simply defers the longer-term need for increased single-family home production.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs rallied today with residential mREITs advancing 1.7% while commercial mREITs advanced 2.1%. Annaly Capital (NLY) finished roughly flat today after it announced that it will implement a reverse stock split of its common stock at a ratio of 1-for-4, to make its number of common shares more in line with companies of a similar market capitalization. Relatedly, last week, S&P announced that NLY will be added to the S&P Mid-Cap 400 Index, the first mREIT in the mid-cap index. The reverse stock split is expected to take effect after the close of business on Sept. 23, 2022. NLY also maintained its quarterly dividend of $0.88/share, consistent with the $0.22/share rate before the reverse stock split.

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 this weekend.

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.

Hoya Capital Research & Index Innovations (“Hoya Capital”) is an affiliate of Hoya Capital Real Estate, a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations provides non-advisory services including market commentary, research, and index administration focused on publicly traded securities in the real estate industry.


This published commentary is for informational and educational purposes only. Nothing on this site nor any commentary published by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. This commentary is impersonal and should not be considered a recommendation that any particular security, portfolio of securities, or investment strategy is suitable for any specific individual, nor should it be viewed as a solicitation or offer for any advisory service offered by Hoya Capital Real Estate. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.


The views and opinions in all published commentary are as of the date of publication and are subject to change without notice. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Any market data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any outlook made in this commentary will be realized.


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