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  • Alex Pettee, CFA

Stocks Rebound • Solid Jobs Data • REIT Earnings

  • U.S. equity markets rebounded Wednesday as investors monitored developments on the Russian invasion of Ukraine and parsed comments from Fed Chair Powell which indicated a more cautious approach to rate hikes.

  • Erasing its weekly declines and closing near session-highs, the S&P 500 advanced 1.8% today while the Mid-Cap 400 and Small-Cap 600 each rallied nearly 3%.

  • Real estate equities were among the outperformers for the second-straight day as the Equity REIT Index rallied 2.2% with all 19 property sectors in positive territory while Mortgage REITs gained 2.0%.

  • The busy slate of employment data this week kicked off with a solid report from ADP, which showed job growth of 475k in February as most indications point to continued resilience across the U.S. labor market.

  • Shopping Center REIT Whitestone REIT (WSR) rallied nearly 5% today after reporting strong earnings results highlighted by impressive leasing spreads of nearly 15% and a sector-leading 310 basis point increase in occupancy rate over last year.

Income Builder Daily Recap

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U.S. equity markets rebounded Wednesday as investors monitored developments on the Russian invasion of Ukraine and parsed comments from Fed Chair Powell which indicated a more cautious approach to rate hikes. Erasing its weekly declines and closing near session-highs, the S&P 500 advanced 1.8% today while the Mid-Cap 400 and Small-Cap 600 each rallied nearly 3%. Elsewhere, oil prices soared another 9% today to close above $110/barrel as investors await to see if U.S. production can ramp up fast enough to prevent damaging economic fallout. Real estate equities were among the outperformers for the second-straight day as the Equity REIT Index rallied 2.2% with all 19 property sectors in positive territory while the Mortgage REIT Index gained 2.0%.

All eyes have been on energy and commodities markets this week amid a historic surge in oil and agriculture prices resulting from the Russian invasion and subsequent sanctions. Meanwhile, the busy slate of employment data this week kicked off with a solid report from ADP this morning, which showed job growth of 475k in February and revised its prior month sharply higher as most indications point to continued resilience across the U.S. labor market. All eleven GICS equity sectors were higher today while Homebuilders and the broader Hoya Capital Housing Index also continued their strong week as mortgage rates have begun to pull back after surging in early 2022.

Real Estate Daily Recap

Shopping Center: Whitestone REIT (WSR) rallied nearly 5% today after reporting strong earnings results highlighted by impressive leasing spreads of nearly 15% and a sector-leading 310 basis point increase in occupancy rate over last year. WSR - which owns a mix of grocery-anchored and power center properties primarily on the Sunbelt regions - delivered FFO growth of 6.5% for full-year 2021 and sees impressive 16.2% growth in 2022, which would be 8% above its pre-pandemic FFO level from 2019. Unlike their mall REIT peers, shopping center REITs are seeing significantly better fundamentals in the post-pandemic period as big-box retailers have doubled down on using their brick and mortar properties as hybrid "distribution centers" in a decentralized last-mile delivery network. Trends in occupancy rate and rent spreads have been most impressive with leasing spreads rising by double-digit rates in Q4.

Yesterday, we published our REIT Earnings Recap: REITs Are Now Cheap. More than 200 REITs have reported earnings results over the past five weeks, providing critical information on the state of the real estate industry amid the extreme volatility in early 2022. Dividend hikes have been among the prevailing themes of earnings season with 40 REITs already raising their payouts so far in 2022, outpacing the record-setting pace seen last year. The thesis for maintaining an overweight allocation to U.S. real estate equities in a balanced portfolio remains especially compelling given their minimal international exposure and inflation-hedging attributes.

We'll hear results from the final handful of REITs over the next several days including single-family rental REIT Tricon American (TCN) tomorrow morning. We'll continue to provide real-time coverage with our Earnings QuickTake posts for Hoya Capital Income Builder members and will publish follow-up articles summarizing our thoughts and analysis throughout REIT earnings season.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs rallied 1.2% today while commercial mREITs finished higher by 1.5%. We'll hear earnings results from Arlington Asset (AAIC) and Western Asset (WMC) this afternoon and from Great Ajax (AJX) on Thursday. The average residential mREIT pays a dividend yield of 11.33% while the average commercial mREIT pays a dividend yield of 7.47%.

Economic Data This Week

Employment data highlights the busy 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 438k in February following stronger-than-expected job growth of 467K in January which included significant revisions to prior months while the unemployment rate is expected to decline to 3.9% after ticking up to 4.0% last month. We also saw Construction Spending data on Tuesday and will see a flurry of Purchasing Managers' Index ("PMI") data throughout the week.

We recently launched Hoya Capital Income Builder - the new premier investment research service focused on real income-producing assets classes. 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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