REIT Earnings • Stocks Rebound • Inflation Data Ahead

• U.S. equity markets rebounded Thursday as benchmark interest rates retreated from their highest levels of the year ahead of a key slate of inflation data on Friday morning.
• Snapping a four-session losing streak, the S&P 500 advanced 0.5% today while the tech-heavy Nasdaq 100 gained 0.9% and the Dow advanced 109 points.
• Real estate equities were mostly-higher as investors parsed a busy slate of earnings reports. The Equity REIT Index advanced 0.8% with 14-of-18 property sectors in positive territory.
• Necessity Retail (RTL) was the upside standout, surging more than 10% after reporting better-than-expected results, noting that its full-year FFO rose 3.9% in 2022 while announcing continued progress in shoring up its balance sheet through asset sales and refinancings.
• Hospital owner Medical Properties Trust (MPW) dipped 8% after reporting ongoing operator issues. Farmland Partners (FPI) dipped 14% after providing downbeat guidance calling for a 30% dip in FFO in 2023.

Income Builder Daily Recap

U.S. equity markets rebounded Thursday as benchmark interest rates retreated from their highest levels of the year ahead of a key slate of inflation data on Friday morning. Snapping a four-session losing streak, the S&P 500 advanced 0.5% today while the tech-heavy Nasdaq 100 gained 0.9% and the Dow advanced 109 points. Bonds caught a bid following a sharp sell-off earlier this week, with the 10-Year Treasury Yield declining by 4 basis points to 3.88%. Real estate equities were mostly-higher as investors parsed a busy slate of earnings reports. The Equity REIT Index advanced 0.8% today with 14-of-18 property sectors in positive territory. The Mortgage REIT Index gained 0.6% while Homebuilders were among the upside leaders.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Net Lease: A half-dozen net lease REITs reported results over the past 24 hours. Necessity Retail (RTL) was the upside standout, surging more than 10% after reporting better-than-expected results, noting that its full-year FFO rose 3.9% in 2022 while announcing continued progress in shoring up its balance sheet through asset sales and refinancings. Getty (GTY) was also an upside standout, advancing about 2% after reporting full-year FFO growth of 8.6% in 2022 - above its prior guidance - and reiterated its outlook for FFO growth of about 3% in 2023, among the stronger growth outlooks in the sector. Broadstone (BNL) and EPR Properties (EPR) each gained about 1% after reporting in-line results. Gladstone Commercial (GOOD) dipped about 5% after reporting that its FFO declined 0.6% in 2022 - one of two net lease REITs that reported negative FFO for the year- as weakness in its office portfolio offset strength in its industrial segment.

Manufactured Housing: Sun Communities (SUI) slumped about 4% after reporting mixed results, noting that its full-year FFO rose 12.9% in 2022 - 120 basis points above its prior guidance - and boosting its dividend by 6% to $0.93/share, but provided a downbeat initial outlook for 2023 with expectations of a 0.4% decline in FFO at the midpoint of its range. Strength from its RV and Marina division - which delivered same-property NOI growth of 10.3% and 7.3%, respectively - offset an uncharacteristically soft year for its core manufactured housing segment, which recorded NOI growth of 3.3%. Expense pressures were the key headwind in late 2022 and its 2023 outlook, offsetting upbeat expectations of 6.3% rental rate growth in its MH division, 7.8% rent increases for RVs, and a 7.5% increase in its marina portfolio.

Cell Tower: American Tower (AMT) - which we own in the REIT Dividend Growth Portfolio - gained after reporting decent results, noting that its full-year FFO rose 1.1% in 2022 - slightly above its prior guidance - but provided initial guidance calling for a 1.6% in FFO at the midpoint of its range. A common theme across the REIT sector, higher interest expense is expected to offset an otherwise strong year of property-level growth. AMT expects 5% organic "same-store" tenant billings growth in the U.S. - an acceleration from the 1% growth in 2022 as the headwinds from the Sprint merger subside. Organic growth was complemented by the construction of nearly 7,000 sites, an American Tower record, including over 2,300 sites built in Q4, its highest level over the past eight quarters.

Industrial: Small-cap Plymouth (PLYM) - which we own in the REIT Focused Income Portfolio - rallied more than 4% after reporting solid results, noting that its full-year FFO rose 7.0% in 2022 and its same-store NOI grew nearly 11% - above its prior guidance range. PLYM confirmed that it achieved 18.1% cash leasing spreads in Q4, commenting that "2022 was a banner year for leasing. We are executing at a higher velocity and rental spreads comparable to prior year." More broadly, PLYM described its outlook for 2023 as "cautiously optimistic," highlighting that it's seeing a large number of announcements on reshoring and nearshoring initiatives that it expects will drive accelerated demand this year in its "Golden Triangle" markets which includes the Sunbelt and Midwest regions.

Storage: ExtraSpace (EXR) rallied nearly 3% after reporting better-than-expected results, noting that its full-year FFO rose 22.1% in 2022 - 130 basis points above its prior outlook - driven by same-store NOI growth of 19.7% - also topping its guidance. EXR's expects its FFO in 2023 to be flat with the prior year as higher interest expenses offset an expected 4% rise in same-store NOI. Earlier this year, EXR raised its quarterly dividend by 8% to $1.62/share. After delivering incredible cumulative rent growth of 30% from mid-2020 to mid-2022, the outlook for the storage sector in 2023 is less certain amid a dip in housing-related demand. We'll hear results this afternoon from CubeSmart (CUBE) and Life Storage (LSI).

Healthcare: Hospital owner Medical Properties Trust (MPW) dipped nearly 8% after reporting mixed results, noting that its full-year FFO rose 4.0% in 2022 - slightly above its prior guidance - but provided a downbeat outlook for 2023 with expectations of a 13.5% dip in its FFO at the midpoint of its range. Tenant concerns were the focus of the report, with MPW noting that its outlook "contemplates a conservative scenario due to the underperformance of Prospect's hospitals, as well as the process by which we expect to recover our investment in Prospect's Pennsylvania and Connecticut hospitals."

Additional Headlines from The Daily REITBeat on Income Builder

• S&P affirmed ADC's “BBB” issuer credit rating on the company and its operating subsidiary with a stable outlook
• AMH, CTO, CUBE, GLPI, LSI, NTST, RHP, and VICI are scheduled to report after the close of trading and LAMR reports tomorrow morning

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were mostly-higher today, with residential mREITs advancing 0.4% while commercial mREITs gained 1.3%. Franklin BSP (FBRT) advanced about 2% after reporting solid results, noting that its BVPS was roughly flat in Q4 at $15.78 while commenting that it's "very happy with where we are today at dividend coverage." New York Mortgage (NYMT) dipped 4% after reporting disappointing results, noting that its Book value Per Share ("BVPS") declined 9% to $3.32 in Q4, but commented that "nearly all book value loss in the quarter were unrealized and expected to be reversed over time." The company also announced a $200M share repurchase program and a one-for-four reverse stock split that is expected to take effect on March 9th. Elsewhere, AG Mortgage (MITT) advanced 2% after reporting a 3% increase in its BVPS in Q4 while MFA Financial (MFA) gained 3% after reporting that its BVPS rose about 2% in Q4 to $15.55.

Economic Data This Week

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.

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