Summary

• U.S. equity markets finished sharply lower Thursday- snapping a four-day winning streak- after disappointing earnings results from several mega-cap technology companies dragged on the major averages.
• Still hanging onto week-to-date gains of roughly 1%, the S&P 500 slumped 2.4% today while the tech-heavy Nasdaq 100 dipped more than 4%. Mid-Cap and Small-Caps declined by roughly 1.5%.
• Real estate equities were among the outperformers today following strong results from residential REITs, but the Equity REIT Index still finished lower by 1.1% today with 18-of-19 property sectors in negative-territory.
• The focus today was on Meta Platforms (FB) - formerly known as Facebook - which recorded a historic one-day plunge that erased the over 25% of market value from one of the world's largest companies.
• Mid-America Apartments (MAA) was among the leaders today after reporting another stellar quarter, noting a continued acceleration in rent growth in late 2021 and into early 2022, recording blended rent growth of 16.0% in Q4 and 16.3% in January, both record-highs for the company.

Income Builder Daily Recap

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U.S. equity markets finished sharply lower Thursday- snapping a four-day winning streak- after disappointing earnings results from several mega-cap technology companies dragged on the major averages. Still hanging onto week-to-date gains of roughly 1%, the S&P 500 slumped 2.4% today while the tech-heavy Nasdaq 100 dipped more than 4%. Mid-Cap and Small-Caps declined by roughly 1.5%. Real estate equities were among the outperformers today following strong results from residential REITs, but the Equity REIT Index still finished lower by 1.1% today with 18-of-19 property sectors in negative territory while the Mortgage REIT Index declined 1.7%.

The focus today was on Meta Platforms (FB) - formerly known as Facebook - which recorded a historic one-day plunge that erased the over 25% of market value from one of the world's largest companies and also dragging the Communications (XLC) sector ETF to one of its worst single-day declines in history. Meanwhile, the 10-Year Treasury Yield claimed back to the cusp of pandemic-era highs today after the Bank of England raised interest rates and set the stage for a more rapid-than-expected monetary tightening.

Equity REIT Daily Recap

Today we published our REIT Earnings & Ratings Updates as an exclusive report for Income Builder members. We're now two weeks into another newsworthy real estate earnings season with roughly one-third of the real estate sector by market cap reporting fourth-quarter results. We noted how residential REITs have been the 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. REIT earnings have been better than expected thus far with 86% of REITs reporting full-year funds from operations ("FFO") results that were above the midpoint of their prior guidance.

Apartments: Mid-America Apartments (MAA) was among the leaders today after reporting another stellar quarter. Sunbelt-focused MAA recorded full-year FFO growth of 9.9% - well above its prior guidance - and sees an acceleration in 2022 to 12.8% at the midpoint of its outlook range. MAA saw continued acceleration in rent growth in late 2021 and into early 2022, recording blended rent growth of 16.0% in Q4 and 16.3% in January, both record-highs for the company. Coastal apartment REITs haven't been a slouch, either, as the three coastal REITs to report results thus far - EQR, AVB, and ESS - all eclipsing their full-year FFO targets and projecting double-digit FFO growth in 2022. While still lagging the Sunbelt, coastal apartment rents are also rising by double-digit rates, averaging 12.0% in Q4 and 13.5% in January across the three coastal REITs.

Single-Family Rental: Invitation Homes (INVH) finished flat today after announcing a $250M lead investment to launch Pathway Homes, a new lease-to-own real estate company. Pathway Homes plans to spend an initial $750M acquiring houses on behalf of its customers, who will rent the properties with the option to purchase them. The rent-to-own model has been used by other SFR operators including privately-owned Home Partners of America, which was acquired by Blackstone for $6 billion last year. In our recent report - Meet Your New Landlord - we discussed our updated outlook for the SFR REIT sector, noting that the growth trajectory remains promising as the institutionalization of the single-family housing market remains in the early innings.

Last week, we published REIT Earnings Preview: Dividend Hikes And 2022 Outlook. Real estate earnings season kicked off this week, and REITs enter fourth-quarter earnings season at an interesting crossroads, having been the best-performing asset class of 2021, but also one of the weakest through the first four weeks of 2022. REIT property-level fundamentals remain on an upward trajectory and we expect another strong quarter from residential REITs, in particular, as recent data indicates that rents continue to soar by double-digit rates across the nation.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential and commercial mREITs each ended today lower by 1.5%. Dynex Capital (DX) gained 1% after reporting that its BVPS at the end of Q4 was $17.99 - a decline of 2.3% during the quarter - and noted that its BVPS was unchanged in January. DX commented that the Fed "stepping back" from the market represents the "cusp of a significant investment opportunity," noting that it has the "liquidity, flexibility, and experience to take advantage of the market opportunities that we believe will be created." We'll hear results this afternoon from PennyMac Mortgage (PMT).

Economic Data This Week

Employment data highlights the busy 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 200k in January following the second-straight month of weaker-than-expected employment growth of 199k in December and for the unemployment rate to remain at 3.9%. We also saw Construction Spending and JOLTs Job Openings data on Tuesday, and we'll see a flurry of Purchasing Managers' Index ("PMI") data throughout the week.

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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.