• U.S. equity markets declined Monday while Treasury yields jumped as investors deliberated the implications of strong employment data and geopolitical tensions ahead of another busy week of corporate earnings results.
• Pausing after a strong start to the year with gains in four-of-five weeks, the S&P 500 slipped 0.5% today while the tech-heavy Nasdaq 100 declined 0.7%. Small-Caps dipped by nearly 2%.
• Real estate equities lagged ahead of a busy week of earnings reports as long-term interest rates jumped for a second-straight session. Equity REITs declined 0.7% while Mortgage REITs dipped 3.4%.
• Life Storage (LSI) surged more than 11% after it received an $11B takeover bid from its peer Public Storage (PSA) in a proposed all-stock deal worth $129 a share - a 17% premium to LSI's last closing price.
• Public Storage - which traded roughly flat today on the news - also announced that it will hike its quarterly dividend by 50% to $3.00/share - its first dividend hike since 2016.

Income Builder Daily Recap

U.S. equity markets declined Monday while Treasury yields jumped as investors deliberated the implications of strong employment data and geopolitical tensions ahead of another busy week of corporate earnings results. Pausing after a strong start to the year with gains in four-of-five weeks, the S&P 500 slipped 0.5% today while the tech-heavy Nasdaq 100 declined 0.7%. The Small-Cap 600 slid 1.7% after gaining over 5% last week. Real estate equities lagged ahead of a busy week of earnings reports as long-term interest rates jumped for a second-straight session. The Equity REIT Index declined 0.7% today with all 16-of-18 property sectors in negative territory while the Mortgage REIT Index dipped 3.4% and Homebuilders declined about 1.5%.

After dipping to four-month lows of around 3.40% last week before the blowout employment report, the 10-Year Treasury Yield jumped another 10 basis points today to 3.63%, sparking downward pressure on bonds across the credit and maturity curve. Hawkish comments from Atlanta Fed President Bostic and renewed geopolitical tensions with China further contributed to the risk-off sentiment as investors braced for the possibility that resilient labor markets may extend inflationary pressures. Commodities prices stabilized following a brutal week with Crude Oil rebounding 1.6% while Natural Gas prices rebounded about 3% from their lowest-levels since late 2019. Nine of the eleven GICS equity sectors finished lower on the session with Technology (XLK) and Communications (XLC) stocks among the laggards today.

As discussed in our Weekly Outlook, while earnings season kicks into high gear this week, the economic calendar slows down following a busy two-week stretch. We'll hear from a number of Federal Reserve officials throughout the week including Fed Chair Powell, who is slated to speak at the Economic Club of Washington on Tuesday. We'll be closely watching Jobless Claims data on Thursday as well for any signs of cracks in the seemingly unwavering labor market. On Friday, we'll get our first look at Michigan Consumer Sentiment data for February which includes a closely-watched consumer inflation expectations survey. Sentiment - which has tracked closely with consumer gasoline prices over the past two years - has rebounded in recent months since hitting its lowest-level on record in mid-2022.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Storage: Life Storage (LSI) - which we recently added to the REIT Dividend Growth Portfolio - surged more than 11% after it received an $11B takeover bid from its peer Public Storage (PSA) in a proposed all-stock deal worth about $129 a share - a 17% premium to LSI's closing price last Friday, but about 15% below LSI's 52-week high at $152. LSI - the fourth-largest storage REIT with a market cap of $9.5B - noted in a release that PSA had privately made an earlier "substantially similar" offer that was rejected. PSA noted in its release that LSI was "not willing to engage in further dialogue" after the initial private offer. Public Storage - which traded roughly flat on the news - also announced that it will hike its quarterly dividend by 50% to $3.00/share - its first dividend hike since 2016. Last week in Storage REITs: Downsized Demand, we analyzed why storage REITs have stumbled of late amid a post-pandemic demand normalization and pressure from elevated supply growth.

After the close today, we'll hear from mall REIT Simon Property (SPG) and apartment REIT UDR (UDR), and tomorrow morning, we'll hear results from mall REIT Macerich (MAC). As discussed in our Earnings Preview, REITs entered earnings season with some positive momentum amid the recent moderation in interest rates and hopes of a 'softish' economic landing following a punishing year of stock price performance. How REITs are responding to this higher rate environment – both on the acquisitions and the financing side - will be closely watched. REITs hunkered down in 2022, but opportunities are becoming more plentiful and we see the non-traded REIT segment as one area that may be "ripe for the picking" if investor redemptions continue. Full-year FFO guidance will be the most closely watched metric, especially in the residential, retail, and office sectors given the wide range of expectations.

Office: Today, we published Office REITs: Plenty of Pain Priced In on the Income Builder Marketplace which discussed our updated outlook on the office sector and recent allocations. Office REITs have been far-and-away the worst-performing property sector since the start of the pandemic as depressed utilization rates and recession concerns have curbed office space demand. Occupiers due for renewal have been somewhat-reluctant to cut office space with leasing volumes still at 75% of pre-pandemic levels, but fundamentals softened more definitively in late 2022. As employment markets normalize from historic tightness, we believe that utilization rates should recover to around 60% in urban metros and 80% in secondary markets – up 20% from current levels - likely a more optimistic view than market consensus. With Office REITs trading at historically deep discounts to peers in public and private markets there appear to be some emerging pockets of value.

Additional Headlines from The Daily REITBeat on Income Builder

• Services Property (SVC) priced $610.2M of net lease mortgage notes in three classes to institutional buyers with an average coupon of 5.60%.
• Brixmor (BRX) announced that John G. Schreiber, the chair of the Company's board of directors will retire at the end of his current term.
• Store Capital (STOR) announced that GIC completed its previously announced acquisition of all outstanding shares of STORE for $32.25/share.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs stumbled today - cutting into their strong gains thus far in 2023 - with residential mREITs sliding 3.4% today while commercial mREITs declined 2.7% amid broad selling pressure across fixed income-related securities. The mREIT earnings season kicks into gear this week with results from Seven Hills (SEVN) on Tuesday, Armour Residential (ARR), Ares Commercial (ACRE), and Chimera (CIM) on Wednesday, and Hannon Armstrong (HASI) on Thursday.

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