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  • Alex Pettee, CFA

Confident Consumers • Home Values Jump • REIT Dividends

Summary

  • U.S. equity markets were mixed Tuesday as better-than-expected economic and housing data powered a rebound from small-cap and mid-cap equities while large-cap technology stocks lagged.

  • Following a decline of 0.1% yesterday, the S&P 500 finished lower by 0.3% today while the Dow Jones Industrial Average declined by 104 points. Small-Caps and Mid-Caps gained over 1% each.

  • Led by the reopening-sensitive property sectors, real estate equities were mostly higher today as the broad-based Equity REIT ETFs gained 0.1% with 12-of-19 property sectors in positive territory.

  • Robust levels of homebuying activity have clashed with record-low inventory levels to put substantial upward pressure on home values since the start of the pandemic. The Case-Shiller Index showed that home values were 11% higher year-over-year in February.

  • Simon Property Group (SPG) gained 1.4% today after declaring a $1.30/share dividend, in line with its previous rate, representing a forward yield of roughly 4.6%. Just four of the eight mall REITs are currently paying a dividend.

Real Estate Daily Recap

U.S. equity markets were mixed Tuesday as better-than-expected economic and housing data powered a rebound from small-cap and mid-cap equities while large-cap technology stocks lagged. Following a decline of 0.1% yesterday, the S&P 500 ETF (SPY) finished lower by 0.3% today while the Dow Jones Industrial Average (DJI) declined by 104 points. Small-Caps (SLY) and Mid-Caps (MDY) each gained more than 1%. Led by the reopening-sensitive property sectors, real estate equities were mostly higher today as the broad-based Equity REIT ETFs (VNQ) gained 0.1% with 12-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 2%.

The 10-Year Treasury Yield was steady today despite a strong slate of economic data this morning which showed that consumer confidence in March rose to the highest level since the pandemic began. Five of the elven GICS equity sectors finished in positive territory today, led to the upside by the economically-sensitive Consumer Discretionary (XLY), Financials (XLF), and Industrial (XLI) sectors. Homebuilders and the broader Hoya Capital Housing Index posted strong gains as well after data this morning showed continued strength behind the U.S. housing market.

Robust levels of homebuying activity have clashed with record-low inventory levels to put substantial upward pressure on home values since the start of the pandemic. Another round of stimulus checks arrived in January and another round is currently being distributed, which has led to double-digit growth rates in personal incomes Boosted by this surge in incomes, all of the major home price indexes have exhibited a reacceleration in price appreciation over the last ten months, underscored by the 11.2% year-over-year increase in the Case Shiller National Home Price Index and 11.1% on the 20-City Composite in October, which was the strongest rate of price appreciation in nearly 15 years.

Commercial Equity REITs

Today, we published Cell Tower REITs: 5G Dominance. Emerging from relative obscurity early last decade, Cell Tower REITs have developed into dominant players of both the telecommunications and real estate sectors through relentless growth. The single largest property sector, three Cell Tower REITs now account for almost a fifth of the total REIT market value and control nearly 75% of wireless communication infrastructure in the U.S. After uncharacteristically lagging early this year, Cell Tower REITs - along with other "essential" property sectors across the technology and housing sectors - have surged over the past three weeks. Cell Tower REITs delivered another stellar year in 2020 with FFO growth of nearly 9% with no signs of slowing.

Malls: Simon Property Group (SPG) gained 1.4% today after declaring a $1.30/share dividend, in line with its previous rate, representing a forward yield of roughly 4.6%. Just four of the eight mall REITs are currently paying a dividend. Following a record start to the year, the pace of dividend increases has cooled over the past two weeks. 51 equity REITs and 17 mortgage REITs have increased their payouts this year, already eclipsing the full-year total from 2021.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.4% today but remain lower by -0.3% on the week. Commercial mREITs gained 1.2% but are lower by -0.5% this week. ARMOUR Residential REIT (ARR) declared a $0.10/share monthly dividend, in line with its previous rate, representing a forward yield of 9.93%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.36% today, on average, but underperformed their respective common stock issues by an average of -0.84%. So far in 2021, REIT Preferred stocks are higher by 5.73% on a price-return basis. The average REIT preferred currently pays a dividend yield of 6.35% and trades at a slight discount to par value. Industrial REIT Duke Realty (DRE) announced yesterday afternoon that it refinanced a $1.2 billion revolving credit facility that includes a reduction in borrowing costs if certain sustainability linked metrics are achieved each year. The facility lowers the REIT’s borrowing costs by 10 basis points from its prior facility.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

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.

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