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  • Alex Pettee, CFA

Retail Rebound • Mortgage Rates Moderate • REIT Dividend Hikes

  • U.S. equity markets advanced for the second-straight day as moderating interest rates and several upbeat earnings reports from retail and homebuilders helped to brighten the gloomy investor sentiment.

  • On pace to finally snap a seven-week skid, the S&P 500 advanced 2.1% today - pushing its week-to-date gains to over 4% - while the tech-heavy Nasdaq 100 rallied nearly 3%.

  • Real estate equities were mostly higher on another strong day from retail and technology REITs. The Equity REIT Index gained 0.1% today with 13-of-19 property sectors in positive territory.

  • National Storage Affiliates (NSA) gained nearly 3% after it raised its quarterly dividend for the second time this year. Mall REIT CBL Properties (CBL) jumped nearly 4% after announcing a debt refinancing deal.

  • Homebuilders - which remain lower by 30-40% this year and now trade at single-digit P/E multiples - led the gains today as mortgage rates pulled back to 5.10% this week - down from a peak of 5.30% earlier this month.

Income Builder Daily Recap

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U.S. equity markets advanced for the second-straight day as moderating interest rates and several upbeat earnings reports from retail and homebuilders helped to brighten the gloomy investor sentiment. On pace to finally snap a seven-week skid, the S&P 500 advanced 2.1% today - pushing its week-to-date gains to over 4% - while the tech-heavy Nasdaq 100 rallied nearly 3%. Real estate equities were mostly higher as another strong day from the retail and hotel property sectors offset weakness from technology REITs. The Equity REIT Index gained 0.1% today with 13-of-19 property sectors in positive territory while Mortgage REITs rallied 1.8%.

A stark contrast to the downbeat retail earnings reports last week, solid results today from Macy's (M) and Dollar General (DG) added to a surprisingly strong slate of retail earnings results throughout the week. Ten of the eleven GICS equity sectors were higher on the day, led to the upside by the Consumer Discretionary (XLY) sector while Homebuilders and the broader Hoya Capital Housing Index were also among the leaders as mortgage rates pulled back to 5.10% this week - down from a peak of 5.30% on May 12th. Despite the equity market rally and less-gloomy sentiment, Treasury yields were little changed today as the 10-Year Treasury Yield climbed 1 basis point to close at 2.76% - well below the recent 3.20% peak.

Real Estate Daily Recap

Storage: National Storage Affiliates (NSA) gained nearly 3% after it raised its quarterly dividend for the second time this year, declaring a $0.55/share dividend, a 10% increase from its prior dividend of $0.50, representing a forward yield of 4.26%. In our State of the REIT Nation report published last week, we noted that FFO growth has significantly outpaced dividend growth over the past several quarters, driving the dividend payout ratios to just 68.8% in Q1 - well below the 20-year average of 80%. With a historically low dividend payout ratio, we believe that REITs are well-equipped to deliver another year of robust dividend growth that may meet or exceed the record year in 2021 in which 130 equity and mortgage REITs raised their payout.

Mall: Small-cap CBL Properties (CBL) - which has actually been the best-performing mall REIT since emerging from Chapter 11 bankruptcy late last year - jumped nearly 4% today after announcing that it was able to refinance $65M in debt, using the proceeds of a new 10-year fixed-rate mortgage loan to complete a partial redemption of outstanding 10% Senior Secured Notes. This week in Mall REITs: Retail Rout, we discussed that mall REIT earnings results were actually decently encouraging with Simon (SPG) and Tanger (SKT) boosting their full-year FFO outlook, noting a recovery in tenant sales and rent collection back to pre-pandemic levels but soaring fuel prices and persistent inflation threaten to reverse the positive mall momentum.

Casinos: This afternoon, we'll publish an updated report on the Casino REIT sector on the Income Builder marketplace that will discuss our recent trades and repositioning within the sector. Casino REITs - one of the highest dividend-yielding REIT sectors - continue to provide strong value for income-oriented investors with 5-6% dividend yields backed by master leases that have 25-50 year initial terms and cross-default provisions, helping to provide a steady and predictable stream of cash flows which is augmented by accretive external growth. Casino REITs have indeed benefited from an upward "re-rating" from investors as the sector has matured and as the business model - and economic "moat" around these REITs - has become better understood. The M&A environment remains as active as ever. Over the past month, VICI Properties (VICI) closed on its $17.2 billion acquisition of MGM Properties while Realty Income (O) entered the sector with a nearly $2B acquisition.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs delivered another strong day as residential mREITs advanced 1.8% while commercial mREITs gained 1.2%. Arbor Realty (ABR) - one of the best-performing mortgage REITs over the past five years - advanced 1.5% after announcing that it closed on a $1.05 billion loan securitization - of which $873M of investment grade-rated notes were issued while Arbor retained interests in $177M. In our Earnings Recap published last week, we noted that mREITs have been an upside standout over the past several weeks after earnings season showed that Book Value declines were generally not as steep as analysts projected. Residential mREIT Book Value Per Share ("BVPS") metrics declined by 8.4%, on average while commercial mREIT reported an average BVPS increase of 0.1%.

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, the Hoya Capital REIT Preferred Index finished higher by 1.48% today. REIT Preferreds ended 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now roughly 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of 6.96%. In the capital markets today, Agree Realty (ADC) dipped 3.5% after it launched a secondary common stock offering through a forward sale agreement of up to 5M shares.

Economic Data This Week

The busy week of economic data concludes on Friday with Personal Income and Spending data and the revised look at Michigan Consumer Sentiment - which dipped to decade-lows in the initial reading for May. 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 published this weekend.

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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.

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Hoya Capital Research & Index Innovations is an affiliated index provider and research firm that builds custom indexes tracking U.S. commercial and residential real estate sectors, including indexes tracked by exchange-traded funds (ETFs). 

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