Apartment M&A • Retail Rebound • REIT Dividend Hikes

• U.S. equity markets were mixed Wednesday as ongoing concerns over the Russia/Ukraine geopolitical tensions were offset by relief that Federal Reserve officials appeared less-hawkish than feared per their January meeting minutes.
• Pushing their week-to-date gains to 1.4%, the S&P 500 advanced 0.1% today while the tech-heavy Nasdaq 100 finished fractionally lower. The Small-Cap 600 and Mid-Cap 400 were each higher by 0.3%.
• Retail sales surged nearly 4% in January - reflecting the combination of a resilient consumer and the effects of soaring inflation. Spending on home improvement and e-commerce drove the gains.
• Preferred Apartments (APTS) soared 11% today after announcing that it will be acquired by Blackstone Real Estate Income Trust for $25.00 per share in an all-cash transaction valued at approximately $5.8 billion.
• A trio of REITs hiked their dividends over the last 24 hours: ExtraSpace Storage (EXR), Acadia Realty (AKR), and Plymouth Industrial (PLYM). We've now seen 21 REITs hike their dividend this year following a record 130 dividend hikes in 2021.

Income Builder Daily Recap

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U.S. equity markets were mixed Wednesday as ongoing concerns over the Russia/Ukraine geopolitical tensions were offset by relief that Federal Reserve officials appeared less hawkish than feared per their January meeting minutes. Pushing their week-to-date gains to 1.4%, the S&P 500 advanced 0.1% today while the tech-heavy Nasdaq 100 finished fractionally lower. The Small-Cap 600 and Mid-Cap 400 were each higher by 0.3%. Real estate equities were among the leaders today amid a busy stretch of REIT earnings reports as the Equity REIT Index advanced 0.4% today with 13-of-19 property sectors in positive territory while the Mortgage REIT Index gained 0.7%.

Nine of the eleven GICS equity sectors were higher today, led to the upside by the Energy (XLE) and Materials (XLB) sectors while the Communications (XLC) sector lagged amid ongoing pressure on Meta (FB) and Netflix (NFLX). Despite the hotter-than-expected retail sales data, the 10-Year Treasury Yield remained steady at 2.05%, which is the highest level since late 2019.

The Census Bureau reported this morning that retail sales surged nearly 4% in January - reflecting the combination of a resilient consumer and the effects of soaring inflation. Total retail sales increased 3.8% in January - ahead of the 2.1% consensus estimate - and bounced back from the 2.5% decline in December. Since the start of the pandemic, spending on housing-related items have been one of the key drivers of growth as the Building Materials category has climbed nearly 35% since the end of 2019 - including the 4.1% gain in January. Furniture sales increased 7.2% in January, outpaced only by a rebound in department store sales and a 14.5% surge in nonstore (e-commerce) retail spending.

Equity REIT Daily Recap

A trio of REITs hiked their dividends over the last 24 hours. Extra Space Storage (EXR) declared a $1.50/share quarterly dividend, a 20% increase from its prior dividend of $1.25. Plymouth Industrial REIT (PLYM) declared a $0.22/share quarterly dividend, a 4.8% increase from its prior dividend of $0.21. Acadia Realty Trust (AKR) declared a $0.18/share quarterly dividend, a 20% increase from its prior dividend of $0.15. We've now seen 21 REITs hike their dividend this year following a record 130 dividend hikes in 2021.

Apartment: Preferred Apartments (APTS) - which we own in the Hoya Capital High Dividend Yield Index - soared 10% today after announcing that it will be acquired by Blackstone's (BX) nontraded REIT Blackstone Real Estate Income Trust for $25.00 per share in an all-cash transaction valued at approximately $5.8 billion. The purchase price represents a premium of 39% over the Feb 9th closing stock price - the date of the initial Bloomberg article that reported the potential acquisition. The acquisition - which is expected to close in Q2 of 2022 - includes a 30-day go-shop period. We'll hear results from Independence Realty (IRT) after the close today.

Single-Family Rental: Invitation Homes (INVH) – which we own in the REIT Dividend Growth Portfolio – reported strong results, highlighted by record-high blended leasing spreads of 11.1% driven by new lease growth of 17.3% and renewal spreads of 9.0%. INVH delivered FFO growth of 18.5% in 2021 and guidance calls for growth of another 11.4% in 2022. Earlier this month, INVH hiked its dividend by 29.4% to $0.22. Despite the surge in home values, INVH was still able to complete nearly $2B of acquisitions while reducing its leverage and strengthening its balance sheet.

Industrial: Industrial Logistics (ILPT) – which we own in the REIT Focused Income Portfolio – rallied more than 3% after it reported better-than-expected results highlighted by releasing spreads of 15% and portfolio occupancy of 99.2% at year-end. ILPT trades at deep discounts to its industrial REIT peers with a P/FFO of just 11x compared to the industrial 30x, but has made progress in solidifying its balance sheet and upgrading its portfolio quality. ILPT noted that it expects to close on its acquisition of Monmouth Real Estate in Q1 which the company expects will “create a stronger ILPT with enhanced scale, additional high quality e-commerce focused mainland properties, and increased geographic and tenant diversity.”

Healthcare: Welltower (WELL) - which we own in the Hoya Capital Housing Index - rallied more than 3% today after announcing better-than-expected results yesterday afternoon. Despite the Omicron surge in late 2021, WELL reported continued improvement in its senior housing portfolio. WELL's Senior Housing Operating Portfolio ("SHOP") recorded spot occupancy of 77.7% as of December 31, representing a 70 basis point improvement during the quarter while its same-store revenue growth was 4.8% Y/Y. Community Healthcare (CHCT) - which focuses primarily on Medical Office properties - also rallied nearly 4% after reporting strong results.

As discussed in our REIT Earnings Preview: Dividend Hikes And 2022 Outlook, highlights of this afternoon's earnings slate include Empire State Realty (ESRT), Four Corners (FCPT), Essential Property (EPRT), Stag Industrial (STAG), Hudson Pacific (HPP), Host Hotels (HST), and Hersha Hospitality (HT). 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, commercial mREITs climbed 1.1% today while residential mREITs advanced 0.7%. We'll hear results from Armour Residential (ARR) this afternoon and from NexPoint Real Estate (NREF) tomorrow morning. The average residential mREIT pays a dividend yield of 10.62% while the average commercial mREIT pays a dividend yield of 7.31%.

Economic Data This Week

The jam-packed week of earnings reports and economic data kicked off on Tuesday with the Producer Price Index for January, which failed to show any deceleration in inflation after reaching the highest rate on record in December. On Wednesday, we saw Retail Sales data which showed an uptick in January after a disappointing December. The busy slate of housing data kicked off on Wednesday with the Homebuilder Sentiment. On Thursday, we'll see Housing Starts and Building Permits and on Friday we'll see Existing Home Sales data which are expected to show continued momentum behind the housing industry.

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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.