Summary

• U.S. equity markets finished broadly lower Tuesday amid a number of concerns including the impact of the Omicron Covid-19 variant, the looming debt ceiling deadline, and a seemingly more hawkish-sounding Fed.
• After bouncing back yesterday from a similarly-sized decline last Friday, the S&P 500 dipped 2.0% today while the Mid-Cap 400 slipped 2.6% and the Small-Cap 600 declined 2.6%.
• Real estate equities were broadly lower as well as the Equity REIT Index slipped 1.9% today with all 19 property sectors in negative territory while Mortgage REITs declined 2.7%.
• Another day, another REIT dividend increase. Net Lease REIT Four Corners Property (FCPT) became the 121st REIT to raise its dividend this year, hiking its dividend by 4.7%.
• Home values continue to soar, but the pace of the price appreciation appears to finally be moderating. Case Shiller data showed that home prices rose 19.5% in September, down from 19.8% in August.

Income Builder Daily Recap

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U.S. equity markets finished broadly lower Tuesday amid a number of concerns including the impact of the Omicron Covid-19 variant, the looming debt ceiling deadline, and a seemingly more hawkish-sounding Federal Reserve. After bouncing back yesterday from a similarly-sized decline last Friday, the S&P 500 dipped 2.0% today while the Mid-Cap 400 slipped 2.6% and the Small-Cap 600 declined 2.6%. Real estate equities were broadly lower as well as the Equity REIT Index slipped 1.9% today with all 19 property sectors in negative territory while Mortgage REITs declined 2.7%.

Selling pressure was amplified following seemingly hawkish comments from Federal Reserve Chair Powell, who noted that the "risk of higher inflation has increased" and signaled that the Fed would consider quickening the face of tapering to combat inflation. The 10-Year Treasury Yield dipped 9 basis points on the day, flirting with its lowest level since late September. Meanwhile, the debt ceiling deadline - which was extended back in October to mid-December - is again fast approaching with no resolution in sight. All eleven GICS equity sectors were lower on the day while Oil Prices slipped to the lowest level since August.

Home values continue to soar, but the pace of the price appreciation appears to finally be moderating. Case Shiller Home Price Index data today showed that national home prices rose 19.5% in September - down from 19.8% in August - which snapped a streak of 15 consecutive months of sequential acceleration in the year-over-year growth rate. As noted following yesterday's better-than-expected Pending Home sales data, after the breakneck surge in housing market activity in early 2021 and subsequent summer cooldown, recent data indicate that conditions have settled into a more sustainable positive trajectory.

Equity REIT Daily Recap

Shopping Center: Today, we published Shopping Center REITs: Bargain Hunting. Bouncing back from punishing pandemic-related declines, Shopping Center REITs are on the cusp of a full recovery across all critical metrics - but Omicron introduces fresh uncertainty - and also potential opportunity. The retail landscape has improved dramatically this year. Retail sales are on-pace to rise over 15% this year while store closings are on-pace for the lowest level in a decade. Bargains in the shopping center REIT sector were becoming hard to find before the Omicron-driven sell-off. We continue to favor the "essential" grocery-anchored REITs, but see emerging bargains in power center REITs.

Net Lease: Another day, another REIT dividend increase. Four Corners Property Trust (FCPT) became the 121st REIT to raise its dividend this year, declaring a $0.3325/share quarterly dividend, a 4.7% increase from its prior dividend of $0.3175. In our State of the REIT Nation report, we discussed how despite the 120 REIT dividend increases this year, the third quarter total dividend payouts were still 20% below the pre-pandemic third quarter of 2019. With FFO growth significantly outpacing dividend growth, REIT dividend payout ratios remained at just 67% in Q3, indicating that REITs are poised for another big year of dividend increases in 2022 absent COVID-related setbacks.

Healthcare: National Health Investors (NHI) was among the stronger performers today after providing a business update in which it reported that it collected 82.7% of current rents due for November, a healthy improvement from the 78.3% collection in October. Consistent with reports from other skilled nursing REITs over the last quarter, several SNF operators continue to struggle to stay current on rents as nursing shortages and rising costs have pressured margins, but so far the rent deferrals have been limited to a small handful of troubled operators.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, the flattening yield curve pressured mortgage REITs as commercial mREITs finished lower by 1.0% today while residential mREITs slipped 2.1%. iStar (STAR) and Liment Financial (LFT) were the lone gainers on the day while Orchid Island (ORC) and PennyMac Mortgage (PMT) lagged. The average residential mortgage REIT now pays a dividend yield of 9.39% while the average commercial mortgage REIT pays a dividend yield of 6.41%.

REIT Preferreds & Capital Raising

Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were lower by 0.41% but remain higher by 8.16% on a price-return basis and roughly 15% on a total return basis. As it previously indicated when launching its new preferred issue, Public Storage (PSA) announced the redemption of its 4.90% Cumulative Preferred Shares, Series E (PSA.PE) on December 30, 2021.

Economic Data This Week

Employment data highlights the 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 563K in November following last month's better-than-expected employment growth of 531K and for the unemployment rate to tick lower to 4.5%. In addition to Pending Home Sales data on Monday and Case Shiller Home Price Index data on Tuesday, we'll see Construction Spending data on Wednesday.

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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.