Alex Pettee, CFA
Dip Buying • SFR Rents Soar • Lockdowns Avoided?
U.S. equity markets rebounded following three straight days of declines after officials in the U.S. and U.K. showed restraint in instituting more severe economic restrictions amid the recent COVID reacceleration.
Recovering from its worst three-day skid in months, the S&P 500 gained 1.8% today while the Mid-Cap 400 rallied 2.7% and the Small-Cap 600 gained 2.8%.
Led by a strong rebound from COVID-sensitive property sectors, the Equity REIT Index finished higher by 1.1% with 16-of-19 property sectors in positive territory while Mortgage REITs rallied 4.4%.
CoreLogic released its latest Single-Family Rent Index, which showed that SFR rents soared 10.9% year over year in October, up from a 3.2% year-over-year pace in October 2020 while vacancy rates declined to fresh record-lows.
Today, we published 'Casino REITs: The House Always Wins' which discussed our updated outlook and analysis of the casino sector, which is currently the highest dividend-yielding property sector.
Income Builder Daily Recap
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U.S. equity markets rebounded following three straight days of declines after officials in the U.S. and U.K. showed restraint in instituting more severe economic restrictions amid the recent COVID reacceleration. Recovering from its worst three-day skid in months, the S&P 500 gained 1.8% today while the Mid-Cap 400 rallied 2.7% and the Small-Cap 600 gained 2.8%. Led by a strong rebound from COVID-sensitive property sectors, the Equity REIT Index finished higher by 1.1% with 16-of-19 property sectors in positive territory while Mortgage REITs rallied 4.4%.
After dipping to as low as 1.37% during yesterday's sell-off, the 10-Year Treasury Yield briefly climbed back above 1.50% before settling at 1.49%. Nine of the eleven GICS equity sectors were higher today with Energy (XLE) leading the rebound behind a rally in Oil and Gasoline futures. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders today ahead of a busy stretch of housing data with Existing Home Sales released tomorrow morning and New Home Sales data on Thursday.
Equity REIT & Homebuilder Daily Recap
Casinos: Today, we published Casino REITs: The House Always Wins. Casino REITs - the highest dividend-yielding REIT sector - have slumped over the last quarter amid renewed COVID concerns, but continue to provide strong value for income-oriented investors. Despite their ultra-long term triple net lease structures, casino REITs provide excellent inflation hedging characteristics. VICI Properties, in particular, has one of the most inflation-hedged lease structures of any REIT. We remain bullish on the Casino REIT sector as a whole, which we view as a more compelling - and perhaps "under the radar" - alternative to other seemingly "cheap" sectors facing stiffer secular headwinds.
Single-Family Rentals: CoreLogic released its latest Single-Family Rent Index (OTC:SFRI), which showed that SFR rents soared 10.9% year over year in October, up from a 3.2% year-over-year pace in October 2020 while vacancy rates declined to fresh record-lows. Among 20 metro areas analyzed, Miami had the highest year-over-year increase in single-family rents in October 2021 at 29.7%, followed by Phoenix and Las Vegas at 19.3% and 16.5%, respectively. Last week, we published Single-Family Rental REITs: Meet Your New Landlord which discussed how why are one of the great success stories of the Modern REIT Era, becoming a "core" institutional asset class.
Net Lease: American Finance Trust (AFIN) soared another 7.5% today, continuing to rally after it announced yesterday that it will acquire a portfolio of 81 shopping centers from CIM Real Estate Finance Trust for $1.3B. AFIN will concurrently sell three non-core office properties to Sanofi S.A. for $261M. Both transactions are expected to close during Q1 2022 and AFIN expects the deals to be immediately accretive to AFFO per share. Last week in Net Lease REITs: Analyzing Inflation Risk, we noted how acquisition-fueled external growth - which has explained the vast majority of net lease REITs' FFO growth over the last two decades - kicked back into gear late last year and is expected to power a double-digit percentage point rebound in AFFO growth in 2021.
Mortgage REIT Daily Recap
Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs rallied 3.8% today while commercial mREITs gained 3.9%. New Residential Investment (NRZ) was higher by 3.4% today after announcing yesterday afternoon that it completed its acquisition of Genesis Capital from Goldman Sachs. Genesis is expected to originate approximately $2 billion of loans in 2021. BrightSpire Capital (BRSP) gained 3.5% after announcing it closed its previously announced sale of 5 assets to Fortress Investment Group for $223M. The average residential mREIT now pays a dividend yield of 9.75% while the average commercial mREIT pays a dividend yield of 6.25%.
REIT Preferreds & Capital Raising
Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were higher by 0.13% today and are now higher by 7.75% on a price return basis and roughly 14% on a total return basis.
Economic Data This Week
We have another busy week of economic and housing data in the Christmas-shortened week ahead. On Wednesday and Thursday, NAR will release Existing Home Sales data for November which is expected to show a continued acceleration in sales activity despite record-low supply levels. On Thursday, we'll see New Home Sales data which is expected to show similar strength with sales expected to climb to the highest rate since April. On Thursday, we'll also see the PCE Index - the Fed's "preferred" measure of inflation - which is expected to show the fastest rate of consumer price increases since 1982. We'll also be monitoring Personal Income & Spending data as well as Consumer Sentiment on Thursday.
We're excited to announce the launch of our new investment research service here on Seeking Alpha - Hoya Capital Income Builder. We've put together a great team of contributors from across the REIT, dividend, and ETF industry, so whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and a comprehensive suite of tools and models to help build sustainable portfolio income targeting premium dividend yields of up to 10%. And of course, subscribers receive complete access to our investment research - including reports that are never published elsewhere - from Hoya Capital and our team of contributors.
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.