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  • Alex Pettee, CFA

Special Dividends • Healthcare REIT M&A? • Week Ahead

Summary

  • U.S. equity markets rebounded Monday following two weeks of declines after preliminary data indicated that the Omicron Covid-19 variant may result in milder symptoms than past variants.

  • Rebounding from declines of 1.2% last week, the S&P 500 gained 1.2% today while the Mid-Cap 400 rallied 2.0% and the Small-Cap 600 advanced 2.4%. Equity REITs rallied another 2% today.

  • Skilled Nursing REIT CareTrust (CTRE) gained 6% today on reports that the company is "exploring strategic options" including a possible sale. CTRE has been one of the strongest-performing healthcare REITs.

  • We saw another flurry of REIT dividend news this morning following a wave of increases and special dividends last week. Alexandria (ARE) and Essential Properties (EPRT) hiked their regular dividends while Retail Opportunities (ROIC) declared a special dividend.

  • Inflation data highlights the economic calendar in the week ahead, headlined by the Consumer Price Index report on Friday as well as our first look at Consumer Sentiment data for December.

Income Builder Daily Recap

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U.S. equity markets rebounded Monday following two weeks of declines after preliminary data indicated that the Omicron Covid-19 variant may result in milder symptoms than past variants. Rebounding from declines of 1.2% last week, the S&P 500 gained 1.2% today while the Mid-Cap 400 rallied 2.0% and the Small-Cap 600 advanced 2.4%. Real estate equities were broadly higher as well today with the Equity REIT Index gaining 1.8% with all 19 property sectors in positive territory while Mortgage REITs gained 2.0%.


As discussed in our Real Estate Weekly Outlook, a myriad of concerns - Omicron, Fed policy, inflation, and China - sent volatility measures to their highest level since January last week. "Encouraging" signs on Omicron lifted the 10-Year Treasury Yield to 1.43% today after sliding to its lowest level since mid-September last week. All eleven GICS equity sectors were higher on the day with economically-sensitive sectors leading the way while energy prices - Crude Oil and Gasoline futures - posted sharp gains. Homebuilders and the broader Hoya Capital Housing Index also continued their strong performance following a strong slate of housing data last week.

Inflation data highlights the economic calendar in the week ahead, headlined by the Consumer Price Index report on Friday as well as our first look at Consumer Sentiment data for December. Consumer confidence metrics have recorded a historic plunge since late summer as consumer price inflation soars. Consensus estimates call for a 6.7% annual rise in the headline CPI index, which would be the highest since June 1982. On Wednesday, we'll see JOLTS Job Openings data which is expected to show a record-high quantity of job listings in the U.S. as employers continue to scramble to find workers.

Equity REIT Daily Recap

Prisons: Today, we published Prison REITs: The End Is Here as a member-only report on Income Builder. GEO Group (GEO) announced last week that it's joining CoreCivic (CXW) in abandoning the REIT structure, concluding a tumultuous 8-years as REITs. Prison REITs were the worst-performing property sector since their REIT conversions in 2013 and consistently ranked at the bottom across performance metrics - particularly after their once-lucrative dividends were eliminated. Political hostilities aside, demand for private facilities- which have always been a "supplier of last resort"- has declined materially as incarceration rates in the U.S. revert towards the developed economy average, but the recent crime may slow the broader downtrend. Start a free two-week trial to Income Builder to read the full article.

We saw another flurry of REIT dividend news this morning following a wave of five hikes and four special dividends last week. Lab space owner Alexandria Real Estate (ARE) boosted its regular dividend by 2.7% to $1.12 – representing a forward yield 2.3%. Elsewhere, net lease REIT Essential Properties (EPRT) boosted its dividend by 4% to 0.26% - representing a forward yield of 3.8%. Additionally, shopping center REIT Retail Opportunity Investments (ROIC) declared a $0.07/share special dividend, a result of gains on sale realized in connection with ROIC’s property disposition initiative during 2021. PotlatchDeltic (PCH) rallied nearly 3% today after announcing last Friday afternoon that it's boosting its regular quarterly dividend by 7.3% and also declared a special cash dividend of $4.00/share.

Healthcare: CareTrust REIT (CTRE) gained more than 6% today after a Bloomberg report this afternoon that the company is "exploring strategic options" including a possible sale. The owner of skilled-nursing facilities - which has been one of the best-performing healthcare REITs over the past five years despite struggles across the SNF industry - is said to be working with an adviser to see about interest from possible buyers. CTRE originally spun off from the Ensign Group (ENSG) and today owns 223 properties across 28 states with a market cap of roughly $2.0B. Within the healthcare REIT space, we see Omega Healthcare (OHI) as a potential bidder, but wouldn't be surprised to see interest from Ventas (VTR) or Welltower (WELL).

Cannabis: Last Friday, we published Cannabis REITs: When They Go Low, We Get High. Riding a seemingly never-ending 'high' since emerging onto the scene in the mid-2010s, Cannabis REITs are far-and-away the best-performing REIT sector of the past half-decade as the budding industry thrives in the murky and often contradictory regulatory framework of legalized marijuana. Joining Innovative Industrial (IIPR), Power REIT (PW), and AFC Gamma (AFCG), a pair of newcomers will soon enter the pot party - Chicago Atlantic Real Estate (REFI) and Freehold Properties (FHP) - both operating as commercial mortgage REITs - similar to AFCG which went public in early 2021.


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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