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  • Alex Pettee, CFA

Dovish Fed • REIT Earnings • Dividend Increases

Summary

  • U.S. equity markets rallied Wednesday following another slate of strong housing data and after Fed Chair Powell reiterated his dovish commentary and intent to maintain a highly accommodative monetary policy.

  • Climbing back into positive territory for the week, the S&P 500 finished higher by 1.1% today while the Dow Jones Industrial Average surged 425 points to close at record highs.

  • Real estate equities were broadly again higher today following another wave of strong earnings and dividend boosts as the broad-based Equity REIT ETFs gained 0.8% with 15-of-19 property sectors higher.

  • The wave of better-than-expected reports and dividend boosts continued over the last 24 hours as three more equity REITs - Gaming & Leisure Properties (GLPI), Retail Opportunity (ROIC), and Vereit (VER) - each boosted their dividends, bringing the total this year to 29.

  • New Home Sales were stronger-than-expected in January as the housing industry continues to lead the early economic recovery. New Home Sales were higher by 4.3% from last month and 19.3% from last year.

Real Estate Daily Recap

U.S. equity markets rallied Wednesday following another slate of strong housing data and after Fed Chair Powell reiterated his dovish commentary and intent to maintain a highly accommodative monetary policy. Climbing back into positive territory for the week, the S&P 500 ETF (SPY) finished higher by 1.1% today while the Dow Jones Industrial Average (DIA) surged 425 points to close at fresh record highs. Real estate equities were broadly again higher today following another wave of strong earnings and dividend boosts as the broad-based Equity REIT ETFs (VNQ) gained 0.8% with 15-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) jumped more than 3%.

Nine of the eleven GICS equity sectors finished in positive territory today, led to the upside by the Energy (XLE), Financials (XLF), and Industrials (XLI) sectors while Small-Caps (SLY) and Mid-Caps (MDY) also delivered strong outperformance relative to the large-cap benchmarks. Meanwhile, homebuilders and the broader Hoya Capital Housing Index were higher today following another strong slate of housing data and earnings reports.

On that point, the U.S. Census Bureau reported this morning that New Home Sales were stronger-than-expected in January as the housing industry continues to lead the early economic recovery. New Home Sales were higher by 4.3% from last month and 19.3% from last year while the median sales price declined slightly from December, reflecting the sales mix towards more entry-level product. Inventory levels remain historically tight as the Months Supply of New Houses For Sale in the United States declined to 4.0 months, significantly below the 20-year average of 6.0 months.

This morning, we heard results from home improvement firm Lowe's (LOW), which reported another stellar quarter of same-store sales, besting the results from rival Home Depot (HD) for the fourth-straight quarter, citing " continued consumer focus on the home." Comparable sales increased 28.1% in the quarter while comp sales in the U.S. increased 28.6%. As with Home Depot, however, investors were a bit disappointed by the outlook as the firm reiterated its guidance from its December Investor Update during which the Company presented its planning expectations for three potential scenarios for 2021 which assume a modest mix-adjusted market contraction.

Sticking on the housing theme, today we published Apartment REITs: Tale of Two Americas. Apartment REITs have a front-row seat to the burgeoning economic divide as the "urban exodus" continues to add fuel to the "suburban renaissance." While vaccines may eventually reverse recent dynamics, rental rates and occupancy levels have plunged in the high density, coastal "shutdown cities" that employed more draconian lockdown measures. Meanwhile, Apartment REITs focused on Sunbelt and suburban markets delivered a solid year of FFO and NOI growth in 2020, and rental rates continue to trend higher in early 2021. Outside of the troubled urban metros, national apartment markets have been remarkably resilient throughout the pandemic. Apartment REITs' exposure to the troubled markets is more limited than valuations suggest.

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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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