Payrolls Jump • Tech Trouble? • REIT Earnings

• U.S. equity markets snapped a three-day rally Friday in a choppy session as investors digested data showing robust job growth in January juxtaposed with relatively downbeat earnings results from mega-cap tech companies.
• Snapping a three-day winning streak and trimming its weekly gains to 1.5%, the S&P 500 slipped 1.0% today while the tech-heavy Nasdaq 100 dipped 1.8%. The Dow declined 128 points.
• Real estate equities lagged as long-term interest rates rebounded from four-month lows. Equity REITs declined 1.9% today with all 18 property sectors in negative territory while Mortgage REITs declined 0.8%.
• Camden Property (CPT) slumped 3.6% today despite reporting relatively solid fourth-quarter results and raising its quarterly dividend by 6.4% to $1.00/share. Camden expects FFO growth of 3.9% this year, slowing from the 22.3% growth achieved in 2022.
• Skilled nursing REIT Omega Healthcare (OHI) finished lower by 2% today after reporting mixed fourth-quarter results, noting ongoing rent collection difficulties from a handful of struggling operators, but also highlighted some progress in lease restructurings.

Income Builder Daily Recap

U.S. equity markets snapped a three-day rally Friday in a choppy session as investors digested data showing robust job growth in January juxtaposed with relatively downbeat earnings results from a trio of mega-cap tech giants Amazon, Google, and Apple. Snapping a three-day winning streak and trimming its weekly gains to 1.5%, the S&P 500 slipped 1.0% today while the tech-heavy Nasdaq 100 dipped 1.8%. The Dow slipped 128 points. Real estate equities lagged as long-term interest rates rebounded from four-month lows. The Equity REIT Index declined 1.9% today with all 18 property sectors in negative territory while the Mortgage REIT Index slipped 0.8%. Homebuilders dipped 2% but remained among the weekly winners.

Concluding a busy week of employment data, the critical BLS nonfarm payrolls report this morning showed that the U.S. economy added 517k jobs in January - far above consensus estimates of 185k - while wage growth roughly matched expectations with a 4.4% increase, a report seen by some as a second-straight "Goldilocks" report hinting at a soft landing and by others as a cautionary indication that labor markets remain too tight to contain inflation. The 10-Year Treasury Yield jumped 14 basis points to 3.53% today - rebounding from the lowest levels since September. Despite the strong report, commodities continued their rough week Crude Oil dipped another 3% today - lower by 7% on the week - while Natural Gas prices continued their sharp declines to levels last seen in late 2019.

We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook this weekend.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Apartment: Camden Property (CPT) slumped 3.6% today despite reporting relatively solid fourth-quarter results and raising its quarterly dividend by 6.4% to $1.00/share. The Sunbelt-focused apartment REIT reported full-year FFO growth of 22.3% in 2022 - matching its prior guidance - but sees growth slowing to 3.9% at the midpoint of its 2023 outlook. Similar to its peer Mid-America (MAA) which reported results earlier in the week, Camden reported that its blended rent growth cooled to 6.3% in Q4 from 11.6% last quarter as relatively steady renewal rent growth at 8.4% offset a moderation in new lease rent growth to 4.0%. Blended rent growth cooled further to 4.2% in January, matching the rate reported by MAA. As noted in our Earnings Preview, investors are split on whether we're seeing the start of a sustained downtrend with negative annual rent growth or whether the recent softness is more symptomatic of a normalization back to "trend levels."

Healthcare: Skilled nursing REIT Omega Healthcare (OHI) finished lower by 2% today after reporting mixed fourth-quarter results, noting ongoing rent collection difficulties from a handful of struggling operators, but also highlighted some progress in lease restructurings which it expects will result in improved operating performance as the year progresses and the ability to cover its dividend with its Funds Available for Distribution. OHI commented that it remains "optimistic on the long-term skilled nursing facility industry prospects, [but] cautious in the near-term as our operators contend with staffing issues" and a relatively slow return of occupancy levels back towards pre-pandemic levels. Gibbins Advisors reported last month that bankruptcy filings for healthcare companies nearly doubled in 2022 compared to the prior year which it attributes to a “COVID hangover” resulting from waning government support and higher labor costs.

As discussed in our REIT Earnings Preview, earnings season kicks into a higher-gear next week with results from nearly a quarter of the REIT sector. REITs entered earnings season with some 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.

Additional Headlines from The Daily REITBeat on Income Builder

• Alexandria Real Estate (ARE) priced $500 million of 4.75% green senior notes due 2035 and $500 million of 5.15% senior notes due 2053.
• Park Hotels (PK) closed on the sale of the 508-room Hilton Miami Airport for $118.25 million (~$233,000/key) and used the proceeds to pay off the outstanding $50 million balance on its revolving credit facility.
• Farmland Partners (FPI) purchased 291 acres of farmland in Schuyler County, IL for $2.16 million.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs finished an otherwise strong week lower today with residential mREITs slipping 1.5% today while commercial mREITs declined 0.3%. PennyMac (PMT) dipped 3.5% today after reporting that its book value per share ("BVPS") declined about 2% in Q4 to $15.78 - slightly below consensus estimates - and reported its earnings per share was -$0.07/share on net investment income of $49.4M citing "declines in PMT’s interest rate and credit-sensitive strategies." Elsewhere, Two Harbors (TWO) dipped 5% after announcing a secondary offering of 10M shares of common stock. Also today, Ellington Financial (EFC) priced its previously-announced $100M preferred stock offering of 8.625% Series C Fixed-Rate Reset Cumulative Redeemable Preferred that will trade on the NYSE under ticker EFC-C.

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.

Hoya Capital Research & Index Innovations (“Hoya Capital”) is an affiliate of Hoya Capital Real Estate, a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations provides non-advisory services including market commentary, research, and index administration focused on publicly traded securities in the real estate industry.

This published commentary is for informational and educational purposes only. Nothing on this site nor any commentary published by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. This commentary is impersonal and should not be considered a recommendation that any particular security, portfolio of securities, or investment strategy is suitable for any specific individual, nor should it be viewed as a solicitation or offer for any advisory service offered by Hoya Capital Real Estate. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.

The views and opinions in all published commentary are as of the date of publication and are subject to change without notice. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Any market data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any outlook made in this commentary will be realized.

Readers should understand that investing involves risk and loss of principal is possible. Investments in real estate companies and/or housing industry companies involve unique risks, as do investments in ETFs. The information presented does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes.

Hoya Capital Real Estate and Hoya Capital Research & Index Innovations have no business relationship with any company discussed or mentioned and never receives compensation from any company discussed or mentioned. Hoya Capital Real Estate, its affiliates, and/or its clients and/or its employees may hold positions in securities or funds discussed on this website and our published commentary. A complete list of holdings and additional important disclosures is available at www.HoyaCapital.com.