Inflation Week • Stocks Rebound • REIT Earnings

• U.S. equity markets rebounded Monday as 'inflation week' kicked-off with a relatively encouraging report from the New York Fed, which showed a sharp decline in consumer wage growth expectations.
• Rebounding from declines of 1% last week, the S&P 500 gained 1.0% today while the tech-heavy Nasdaq 100 advanced 1.6%, recovering after posting its first weekly decline of the year.
• Real estate equities were broadly higher today as benchmark interest rates stabilized following a post-payrolls bounce. Equity REITs advanced 0.9% while Mortgage REITs gained 1.4%.
• The New York Fed Survey of Consumer Expectations report showed that households expected income growth of 3.3% over the next year - a historically sharp decline from the prior survey - while expectations of three-year inflation moderated to lowest-level since September 2020.
• Alexander's (ALX) - which owns six properties in NYC with Bloomberg LP as its primary tenant - gained about 1% after reporting in-line results this morning, noting that its full-year FFO declined 3% in 2022 due primarily to higher interest expenses on its variable rate debt.

Income Builder Daily Recap

U.S. equity markets rebounded Monday as a busy week of inflation data kicked off with a relatively encouraging report from the New York Federal Reserve, which showed a sharp decline in wage growth expectations in January. Rebounding from declines of 1% last week, the S&P 500 gained 1.0% today while the tech-heavy Nasdaq 100 advanced 1.6%, recovering after posting its first weekly decline of the year. Real estate equities were broadly higher today as benchmark interest rates stabilized following a post-payrolls bounce. The Equity REIT Index advanced 0.9% today with 16-of-18 property sectors in positive territory while the Mortgage REIT Index advanced 1.4% and Homebuilders rallied 2%.

Ahead of the CPI report on Tuesday morning, the post-payrolls surge in Treasury yields paused after the release of the New York Fed Survey of Consumer Expectations report, which showed that households expected income growth of 3.3% over the next year - a historically sharp decline from the prior survey - while expectations of three-year inflation moderated to lowest-level since September 2020. The 10-Year Treasury Yield retreated 3 basis points to 3.72% but the 2-Year Treasury Yield was roughly unchanged at 4.52%. With another busy slate of corporate earnings reports on tap, ten of the eleven GICS equity sectors finished higher on the day with Technology (XLK) and Communications (XLC) stocks leading on the upside.

Inflation, retail, and the U.S. housing market are in the spotlight in another jam-packed week of economic data in the week ahead. The main event comes on Tuesday with the Consumer Price Index for January, which investors and the Fed are hoping will show a continued cooling of inflationary pressures. The headline CPI is expected to moderate to a 6.2% year-over-year rate while the Core CPI is expected to decelerate to 5.5%. As with recent months, the metric we're watching most closely is the CPI-ex-Shelter Index - which since July has averaged a -3.2% annualized rate - among the most deflationary five-month periods on record. Later in the week on Thursday, we'll see the Producer Price Index which is expected to slow to similar signs of cooling. We'll also see an important slate of housing market data with NAHB Homebuilder Sentiment data on Wednesday and Housing Starts and Building Permits data on Thursday. On Wednesday, we'll also see Retail Sales data which is expected to show a rebound in spending following a disappointing December.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Today we published our REIT Earnings Halftime Report. At the midpoint of REIT earnings season, results thus far have modestly exceeded expectations. Of the 36 REITs that provide guidance, 20 (56%) reported 2022 Funds From Operations ("FFO") above their prior guidance while 3 (8%) missed. Industrial, Manufactured Housing, and Apartment REITs have been the upside standouts thus far, all forecasting mid-single-digit FFO growth in 2023. Retail REIT FFO is expected to be flat in 2023 while Office REITs forecast mid-single-digit FFO declines. Brixmor (KRX), Kite Realty (KRG), and Vornado (VNO) report after the close of trading while Armada Hoffler (AHH), Safehold (SAFE), and Urban Edge (UE) report tomorrow morning before the market open.

Office: Alexander's (ALX) - which owns six properties in NYC with Bloomberg LP as its primary tenant - gained about 1% after reporting in-line results, noting that its full-year FFO declined 3% in 2022 due primarily to higher interest expenses on its variable rate debt. In our REIT Halftime Report, we noted that while fourth-quarter results have been a bit better than expected across much of the office sector, the FFO outlook for 2023 has been notably soft across the sector with all 9 REITs projecting a decline in FFO of at least 5%. Notably, Office REITs utilize variable rate debt at roughly twice the rate of the broader REIT sector average, representing about 11% of its Enterprise Value. We've observed a continued outperformance from REITs focused on Sunbelt and secondary markets with all four of these REITs - Cousins, Corporate Office, Highwoods (HIW), and Piedmont (PDM) - all forecasting 2023 FFO that will remain above their pre-pandemic level from 2019.

Additional Headlines from The Daily REITBeat on Income Builder

• Pennsylvania REIT (PEI) announced the sale of its Whole Foods parcel at Plymouth Meeting Mall for $27 million as part of its capital-raising initiative, bringing its total asset sales over the past two years to $141 million.
• Healthpeak (PEAK) announced the completion of its transition to an UPREIT - a corporate structure that enables more tax-efficient acquisitions.
• Community Healthcare Trust (CHCT) announced that its Chairman and CEO Timothy Wallace is taking a medical leave of absence. David Dupuy, the company's Chief Financial Officer, will assume the Interim CEO role.
• Aimco (AIV) announced that Terry Considine, founder of AIMCO, has resigned from its board of directors to focus on Apartment Income (AIR) - which spun-out from Aimco in 2020.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs rebounded today after a sharp sell-off last week with residential mREITs gaining 1.2% today while commercial mREITs advanced 1.6%. In our REIT Halftime Report, we noted that residential mREITs have reported an average 2% increase in BVPS in Q4 from the prior quarter - led by a rebound in agency-focused mREITs - while commercial mREITs have reported a 1% decline. We'll hear results from Seven Hills Realty (SEVN) after the close today, the first of six mREIT earnings reports this week.

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