Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Dividend Hikes | Guidance Boosts | Earnings Heat-Up

Updated: Oct 22

Daily Recap

  • U.S. equity markets finished lower Wednesday amid a continued stalemate on a renewed fiscal stimulus package as investors parse a frenetic slate of corporate earnings reports and political developments.

  • Coming off gains of 1.5% yesterday, the S&P 500 finished lower by 0.2% today while the tech-heavy Nasdaq 100 declined by 0.1% and the Dow Jones Industrial Average dipped 98-points.

  • After gains of 0.8% yesterday and ahead of a busy slate of earnings, the broad-based Equity REIT ETF (VNQ) finished lower by 0.3% with 11 of 18 sectors in negative-territory.

  • Net lease REITs Alpine Income (PINE) and cell tower REIT Crown Castle (CCI) became the 32nd and 33rd equity REIT to raise its dividend this year. Meanwhile, Industrial REITs Rexford (REXR) and First Industrial (FR) boosted FFO guidance.

  • Homebuilders pulled back today despite more strong housing data this morning. Mortgage applications to purchase a single-family home remained strong last week and are now higher by 26% from last year. Existing Home Sales data is released tomorrow morning.

Real Estate Daily Recap

U.S. equity markets finished lower Wednesday amid a continued stalemate on a renewed fiscal stimulus package as investors parse a frenetic slate of corporate earnings reports and political developments. Coming off gains of 1.5% yesterday, the S&P 500 ETF (SPY) finished lower by 0.2% today while the tech-heavy Nasdaq 100 (QQQ) declined by 0.1% and the Dow Jones Industrial Average (DIA) dipped 98 points. After gains of 0.8% yesterday and ahead of a busy slate of earnings, the broad-based Equity REIT ETF (VNQ) finished lower by 0.3% with 8 of 18 property sectors in positive territory while the Mortgage REIT ETF (REM) declined 0.9% on the day.

Concerns over a "second wave" of the coronavirus pandemic - which has sent several Eurozone countries back into lockdowns - has been mostly offset by better-than-expected economic data and a solid start to corporate earnings season over the last two weeks. Perhaps indicating that investors are expecting an ever-elusive stimulus deal to eventually be reached, the 10-Year Treasury Yield (IEF) ticked higher by 2 basis points to close at 0.82%, the highest close since June 9th. 9 of the 11 GICS equity sectors finished lower today, led to the downside by the Energy (XLE), and Industrials (XLI) sectors.

Homebuilders and the broader Hoya Capital Housing Index finished lower today despite more strong housing data this morning. The Mortgage Bankers Association reported that mortgage applications to purchase a single-family home remained strong last week and are now higher by 26% from last year while refinancing applications are now higher by 74% from last year. The 30-Year Fixed Mortgage Rate with conforming loan balances stands at 3.02%, just above record-low levels, and down nearly 90 basis points from last year. Earlier this week, we saw record-high Homebuilder Sentiment data and very strong Housing Starts and Building Permits permits data as the red-hot U.S. housing industry is showing few signs of cooling into the Autumn months.

Commercial Equity REITs On Monday, we published REIT Earnings Preview: Who Paid The Rent? Real estate earnings season has begun as more than 200 REITs and housing industry companies will report earnings over the next month. Rent collection - a metric that was rarely reported in the pre-COVID-19 era - has become the most critical statistic tracked by investors due to its impact on dividend-paying capacity. REITs enter third-quarter earnings season as the third-worst performing out of 11 GICS equity sectors, but improving rent collection and dividend commentary could be a positive catalyst to drive a recovery. 

IndustrialReporting yesterday afternoon, Rexford Industrial (REXR) finished lower by 1.3% today despite reporting a 23.8% rise in NOI growth and boosting full-year Core FFO and same-store NOI guidance. REXR now sees Core FFO rising 5.7% in 2020. This comes one day after sector- stalwart Prologis (PLD) boosted Core FFO guidance as PLD now sees 13.7% growth this year which will likely be the highest among large-cap REITs. This afternoon, First Industrial (FR) made it three-for-three after boosting FFO guidance as the firm now sees FFO growth of 5.2% in 2020.

Net Lease: Alpine Income (PINE) reported this afternoon that it collected 100% of third-quarter rents and 100% of rents in October and also announced that it will increase its dividend by 10%, becoming the 32nd equity REIT to increase their dividend this year. Getty Realty (GTY) reported this afternoon that the company collected 98% of contractual base rent, roughly consistent with their near-perfect collection rate throughout the pandemic. Earlier this week, Agree Realty (ADC), which was the first net lease REIT to boost their dividend this year, reported that rent collection averaged 97% during the third quarter, including 99% in September.  

Cell Towers: Crown Castle (CCI) reported earnings that beat on the top and bottom line and also announced an 11% boost to its common stock dividend, becoming the 33rd REIT to raise dividends this year. CCI also updated its 2020 outlook and provided a 2021 outlook. For 2020, it now sees AFFO growth up 9% from last year. For 2021, CCI expects AFFO to rise 12%. Throughout the coronavirus pandemic, the high-flying cell tower sector has thrived. Apple's (AAPL) upcoming iPhone 12 launch represents the true "arrival" of 5G, the much-anticipated next-generation mobile network that promises to usher in a new era of technological innovation.

Manufactured Housing: This afternoon, Sun Communities (SUI) beat on the top and bottom line while reporting MH and annual RV rent collections were approximately 97.0% and 98.0%, respectively. Same-community NOI jumped 5.5% while Core FFO jumped 9.5% from the same quarter last year.  Earlier in the week, Equity Lifestyle (ELSreported 1.8% growth in same-store NOI, up from 1.0% last quarter, driven by a 4.9% gain in same-store revenues, but offset by a 9.1% jump in same-store operating expenses.

Office: This afternoon, we'll also hear results from Brandywine (BDN) and SL Green (SLG) which we'll discuss in tomorrow's Daily Recap. Despite reporting near-perfect rent collection throughout the pandemic, office REITs continue to be under pressure as the “work from home” paradigm threatens the long-term outlook. Survey data and commentary from corporations indicate that the WFH paradigm is here to stay long after the pandemic subsides. Technology like Zoom (ZM) has accelerated the pre-existing trends of increased workplace efficiency. Nuance is required, however, as suburban and Sunbelt office assets are likely to see robust demand over the next decade, mimicking similar trends as those seen after the 9/11 terrorist attacks amid a broader "suburban revival."

Mortgage REITs As tracked in our Mortgage REIT Tracker, residential mREITs finished lower by 0.9% today and remain lower by 2.0% on the week. Commercial mREITs declined by 0.5% but remain lower by 2.5% this week. This afternoon, Armour Residential (ARR) kicked off third-quarter mortgage REIT earnings season. ARR estimated that its book value per common share was $11.74 per share, an increase of 5.7% from its reported BVPS of $11.11 at the end of the second quarter. ARR had previously announced the completion of a strategic transition of its investment portfolio to solely agency-backed mortgage-backed securities.

Out of the 41 mREITs in our coverage, 31 reduced or suspended dividends, 8 have maintained, and 2 have raised. Hunt Companies (NYSE:HCFT) and Abror Realty (ABR) are the lone mortgage REITs to raise dividends this year above pre-pandemic levels. Last month, we published our Mortgage REIT Earnings Recap where we discussed some of the broader trends in the mREIT industry.

REIT Preferreds & Bonds As tracked in our all-new REIT Preferred Stock & Bond Tracker, REIT Preferred stocks finished lower by 0.50% today, on average, and underperformed their respective common stock issues by an average of 0.80%. Among REITs that offer preferred shares, the performance of these securities has been an average of 21.33% higher in 2020 than their respective common shares. Preferred stocks generally offer more downside protection, but in exchange, these securities offer relatively limited upside potential outside of the limited number of “participating” preferred offerings that can be converted into common shares.

This Week's Economic Calendar It's been a jam-packed week of economic data with more to come in the days ahead. On Monday, the NAHB released their Homebuilder Sentiment data for October. On Tuesday, we saw Housing Starts and Building Permits for September. On Wednesday, we saw MBA Mortgage Market data. On Thursday, we'll see Existing Home Sales for September. Last month, Existing Home Sales rose by 10.5% from the prior year to the strongest sales pace in 14 years. We'll also see Initial and Continuing Jobless Claims data on Thursday morning and Manufacturing PMI data on Friday.

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