Retail Rebound • REIT Earnings • Dividend Hikes

• U.S. equity markets finished mostly-higher Wednesday in another choppy session after strong retail sales and housing market data prompted investors to reevaluate inflation expectations and recession odds.
• Lifting its week-to-date gains to over 1.5%, the S&P 500 finished higher by 0.3% today. The 10-Year Treasury Yield crept higher again today to 3.81% - the highest since early January.
• Real estate equities were among the leaders today following a strong slate of earnings results and a handful of dividend hikes. The Equity REIT and Mortgage REIT Index each advanced 0.4%.
• U.S. retail sales increased by the most in nearly two years in January - rebounding after a relatively soft holiday season - as unseasonably warm weather and improving consumer sentiment lifted spending in several key discretionary categories.
• Net lease REIT Realty Income (O) and strip center REIT InvenTrust (IVT) each hiked their dividends while commercial mortgage REIT Ares Commercial (ACRE) declared a supplemental dividend. Residential mREIT Armour Residential (ARR), however, trimmed its payout by 20%.

Income Builder Daily Recap

U.S. equity markets finished mostly-higher Wednesday in another choppy session after strong retail sales and housing market data prompted investors to reevaluate inflation expectations and recession odds. Lifting its week-to-date gains to over 1.5%, the S&P 500 finished higher by 0.3% today while the tech-heavy Nasdaq 100 advanced 0.8%. The 10-Year Treasury Yield crept higher again today to 3.81% - up another 5 basis points to the highest levels since January. Real estate equities were among the leaders today following a strong slate of earnings results and a handful of dividend hikes. The Equity REIT Index gained 0.4% today with 16-of-18 property sectors in positive territory while the Mortgage REIT Index gained 0.4%.

U.S. retail sales increased by the most in nearly two years in January - rebounding after a relatively soft holiday season - as unseasonably warm weather and improving consumer sentiment lifted spending in several key discretionary categories. The Census Bureau reported that total retail sales jumped 3.0% in January from the prior month - the largest monthly increase since March 2021 - to levels that were 6.4% above January 2021. Sales at department stores, restaurants, motor vehicles, and furniture retailers recorded the largest monthly gains. Data indicates that consumers have returned to brick-and-mortar retail locations at the highest rates in several years as the annual increase in the online sales (nonstore retail) category was just 3.0%, which was the lowest in over four years.

We also saw relatively strong housing market data this morning with the NAHB Homebuilder Sentiment Index rising 7 points to 42 in February - the highest monthly gain since July 2013 - with notable increases in all three subcategories and across all four geographical regions. The recent moderation in mortgage rates has breathed some renewed life into the icy-cold housing market with the 30-Year Mortgage Rate declining to around 6% in recent weeks - down about 100 basis points from its peak last October. Homebuilder Taylor Morrison (TMHC) gained 2% after reporting decent results and echoing this improved sentiment, commenting that it's seeing "positive momentum in sales activity and shopper sentiment since mid-January."

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Net Lease: Agree Realty (ADC) rallied nearly 3% after reporting better-than-expected Q4 FFO, pushing its full-year 2022 FFO growth to 11.2%. Despite the surge in interest rates over the past year, ADC hasn't slowed the pace of acquisitions, acquiring over $1.5B in net assets in full-year 2022 - up about 15% from its haul in 2021 - and expects to acquire "at least $1B" in properties in 2023. ADC noted that it acquired 131 properties in Q4 for $404.9M at a weighted-average capitalization rate of 6.4% - up only about 30 basis points from its average cap rate in Q4 of 2021 despite a roughly 200 basis point increase in the benchmark 10-Year Treasury yield. ADC noted that "cap rates crept higher, but bid-ask spread remains [wide] as sellers are slow to adjust to current market dynamics... We have yet to see a commensurate cap rate expansion in the space." Elsewhere in the net lease space, Realty Income (O) gained after hiking its monthly dividend by 2.4% to $0.2545/share - the 15th REIT to raise its dividend this year. We'll hear results this afternoon from Essentials Property (EPRT) and Four Corners (FCPT).

Industrial: Industrial Logistics (ILPT) - which plunged nearly 90% last year - rebounded more than 15% today after reporting decent results with strong property-level fundamentals helping to partially offset the effects of higher interest expense from its elevated debt burden resulting, in part, from its ill-time acquisition of Monmouth in 2021. ILPT reported solid leasing trends in Q4, signing 1.4M SF of space at 18.7% higher rental rates on a GAAP basis, bringing its full-year releasing activity to 7.8M square feet at rents that were 47.3% above expiring leases. Positively, ILPT was able to push several looming debt maturities out to 2027, but the firm noted that it has made little progress in finding a JV partner to raise additional capital to pay down debt, per its initial plan when it acquired Monmouth. We'll hear results this afternoon from STAG Industrial (STAG) and tomorrow morning from LXP Industrial (LXP).

Strip Centers: The strong earnings season for the strip center REIT sector continued over the past 24 hours with a pair of better-than-expected reports. InvenTrust (IVT) advanced 2% after announcing slightly better-than-expected results and announcing that it will hike its dividend by 5% starting with its April payment. IVT reported that it achieved full-year FFO growth of 12.1% in 2022 - at the low-end of its prior guidance - but projects FFO growth of 2.9% for 2023 - the highest in the sector thus far. Acadia Realty (AKR) gained 2% today after reporting that its full-year FFO rose 7.2% in 2022 - also slightly below its prior guidance - but similarly provided 2023 guidance calling for decent FFO growth of 2.1% for 2023. We'll hear results this afternoon Retail Opportunity (ROIC) and RPT Realty (RPT).

Billboard: Yesterday we published Billboard REITs: We're Paying Attention on the Income Builder marketplace which discussed our updated sector outlook and recent allocations. From the bright lights of Times Square to the iconic signage on LA's Sunset Strip, advertising billboards have been an inescapable fixture of the typical American commute for decades. Billboard REITs own a commanding share of the nation's 500,000 outdoor advertising displays - a surprisingly resilient business that has seen revenues and profitability fully recover to pre-pandemic levels. Unlike other increasingly-cluttered digital formats, there's "only one channel" on the highway and these Billboard REITs are well-positioned to capture the steadily growing share of marketing spending towards Out-of-Home ("OOH") advertising. We like the clear supply constraints and the importance of scale in the billboard business – granting these REITs a meaningful competitive advantage and legitimate economic moat.

Earlier this week, we published our REIT Earnings Halftime Report. At the midpoint of REIT earnings season at the start of this week, 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. In addition to the aforementioned reports, we'll hear results this afternoon from healthcare REIT Welltower (WELL); data center REIT Equinix (EQIX); hotel REITs Host (HST) and Hersha (HT); office REITs Empire State Realty (ESRT), Office Properties Income (OPI), and Paramount (PGRE); and residential REITs Invitation Homes (INVH) and Independence Realty (IRT).

Additional Headlines from The Daily REITBeat on Income Builder

• Fitch Ratings affirmed RPT Realty's (RPT) “BBB-“ Long-Term Issuer Default Ratings with a stable outlook
• Digital Realty (DLR) announced that a new AWS Direct Connect on-ramp region is available at its Ashburn Campus

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs mixed today with residential mREITs slipping 0.4% while commercial mREITs gained 0.8%. Ares Commercial (ACRE) gained 2% after reporting better-than-expected distributable EPS of $0.44 - above the $0.37 consensus - and declaring a supplemental dividend of $0.02/share on top of its regular dividend of $0.33. Chimera (CIM) finished lower by 3% after it reported that its Book Value Per Share ("BVPS") increased about 1% in Q4 to $7.49/share. CIM commented that "right now, we feel good about that $0.23 dividend." ARMOUR Residential (ARR) - which reports results this afternoon - finished lower by 3% after trimming its monthly dividend by 20% to $0.08/share - representing a forward yield of roughly 16.8% at the lowered rate. 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.

Economic Data This Week

Inflation, retail, and the U.S. housing market are in the spotlight in another jam-packed week of economic data in the week ahead. Following the CPI report on Tuesday, we'll see the Producer Price Index on Thursday which is expected to slow to similar signs of cooling in the annual increase. We'll also see Housing Starts and Building Permits data on Thursday as well.

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