Russia Incursion • $100 Oil • REIT Earnings

• U.S. equity markets finished broadly lower Tuesday as tensions on the Russia/Ukraine border amplified over the weekend, a dispute which threatens to prolong inflationary headwinds on global energy prices.
• Following a decline of 1.4% last week and dipping into "correction" territory with today's declines, the S&P 500 declined 1.1% today while the tech-heavy Nasdaq 100 declined 0.7%.
• Real estate equities were among the outperformers today ahead of the busiest week of REIT earnings as the Equity REIT Index declined 0.5% today with 3-of-19 property sectors in positive-territory.
• Manufactured housing REIT Sun Communities (SUI) reported FFO growth of 27.9% - by far the best in the company's history - and sees FFO growth of 9.8% in 2022 at the midpoint of its initial guidance range. SUI also announced a 6.0% dividend increase to 3.52/share.
• National Storage (NSA) reported impressive results with FFO growth of 32.2% in 2021 - significantly topping its prior guidance range and driven by a 20% increase in same-store NOI - and sees FFO growth of another 19.9% in 2022.

Income Builder Daily Recap

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U.S. equity markets finished broadly lower Tuesday as tensions on the Russia/Ukraine border amplified over the weekend, a dispute which threatens to prolong inflationary headwinds on global energy prices. Following a decline of 1.4% last week and dipping into "correction" territory with today's declines, the S&P 500 declined 1.1% today while the tech-heavy Nasdaq 100 declined 0.7%. The Small-Cap 600 and Mid-Cap 400 were each lower by 1.2% today. Real estate equities were among the outperformers today ahead of the busiest week of REIT earnings as the Equity REIT Index declined 0.5% today with 3-of-19 property sectors in positive territory while the Mortgage REIT Index slipped 2.6%.

All eleven GICS equity sectors were lower on the day as geopolitical tensions have pushed Crude Oil prices to the cusp of $100/barrel - the highest level since 2014 - which spells particular trouble for Western European countries that are highly dependant on foreign imports, but could be a net positive for U.S. oil-producing regions which are expected to see record production levels in 2022. Economic data this morning was stronger-than-expected with several PMI metrics showing a solid rebound in February while recent high-frequency data including TSA Checkpoint metrics have shown signs of economic momentum as the world appears to be once-and-for-all emerging from the two-year pandemic.

We have another frenetic week of economic data and earnings reports in the Presidents' Day-shortened week ahead, kicking off today with the Case Shiller Home Price Index for December which showed signs of moderating home price appreciation as the effects of higher mortgage rates begin to be felt. On Thursday and Friday, we'll see New Home Sales and Pending Home Sales which are both expected to show that even with the recent rise in mortgage rates and historically-low inventory levels, overall housing demand remains robust. On Friday, we'll see inflation data via the PCE Index which is expected to show the highest rate of consumer inflation in four decades as well as Personal Income & Spending data.

Real Estate Daily Recap

Last week we published REIT Earnings Halftime Report: Buying The REIT Correction. At the halfway point of REIT earnings season, the majority of REITs are now in "correction" territory with several of the highest-flying REITs in "bear market" territory. Consistent with the trends seen across the equity market, REIT earnings have generally been better than expected with the vast majority of REITs topping estimates and raising full-year guidance. Residential REITs continue to be upside standouts of earnings season thus far as rents continue to soar by double-digit rates across essentially all markets and segments of the rental markets.

Home Improvement: Home Depot (HD) slipped despite delivering very strong comparable sales results and boosting its dividend by 15%, but investors were disappointed by limited full-year guidance calling for "slightly positive" comp sales growth and "flat" operating margins in 2022. HD commented, "The broader housing environment continues to be supportive of home improvement. Demand for homes continues to be strong, and existing home inventory available for sale remains near record lows, resulting in support for continued home price appreciation. On average, homeowners' balance sheets continue to strengthen and the housing stock continues to age." We'll hear results from competitor Lowe's (LOW) tomorrow.

Apartments: This weekend, we published Shelter From Inflation as an exclusive report for Income Builder subscribers. Rents are soaring at the fastest pace on record in essentially every major market across the country. After rising nearly 20% in 2021, renters should prepare for double-digit growth again in 2022. Riding the rental boom, Apartment REITs continue to report stellar earnings results, ending 2021 with record-high occupancy rates with the momentum accelerating in 2022 with 15% earnings growth this year. Not only are residential REITs an effective inflation hedge, they should also benefit from rising mortgage rates if households get priced out of the ownership markets. We remain bullish on apartment REITs and continue to lean towards faster-growing Sunbelt-focused REITs.

Manufactured Housing: Sun Communities (SUI) reported FFO growth of 27.9% - by far the best in the company's history - and sees FFO growth of 9.8% in 2022 at the midpoint of its initial guidance range. As with its peer Equity Lifestyle (ELS), its the RV and marina businesses that are driving the incremental growth both at the same-store level and the external-growth level. SUI recorded same-store NOI growth of 11.2% in 2021 and sees 6.4% NOI growth in 2022 driven by a 4.9% increase in core manufactured housing NOI and an incredible 28.9% increase in RV NOI. SUI's $385M in acquisition activity in Q4 was focused exclusively on RV and marina assets. SUI also announced a 6.0% dividend increase to 3.52/share.

Storage: National Storage (NSA) reported impressive results, providing a strong read-through for the balance of the storage REIT sector which reports results throughout the week. NSA recorded FFO growth of 32.2% in 2021 - significantly topping its prior guidance range and driven by a 20% increase in same-store NOI - and sees FFO growth of another 19.9% in 2022. Self-Storage REITs stumbled into the pandemic with challenged fundamentals and an outlook for near-zero growth amid oversupply challenges, but catalyzed by housing market strength, self-storage demand has suddenly become insatiable. We'll hear results from Public Storage (PSA) this afternoon, ExtraSpace (EXR) on Wednesday, and CubeSmart (CUBE) on Friday.

As discussed in our REIT Earnings Preview: Dividend Hikes And 2022 Outlook, highlights of this afternoon's earnings slate include net lease REITs Realty Income (O), Agree Realty (ADC), EPR Properties (EPR), and Broadstone (BNL); hotel REITs Apple Hospitality (APLE), Sunstone Hotels (SHO), and Pebblebrook Hotels (PEB); student housing REIT American Campus (ACC), and office REIT Paramount (PGRE). 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 declined 1.9% today while residential mREITs finished lower by 2.5%. BrightSpire Capital (BRSP) declined 2% despite reporting better-than-expected results, noting that its Book Value Per Share ('BVPS') increased 3% to $12.37 in Q4 and noted that it expected a net increase of $0.35 to its BVPS after the payoff of its "5-Investment Preferred Financing" following a co-invest portfolio sale. We'll hear results from TPG Real Estate Finance (TRTX) after the close today and results from Franklin BSP (FBRT) and Ellington Financial (EFC) after the close tomorrow.

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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.