• Alex Pettee, CFA

Fed Holds • Housing Shortage • REIT Dividend Boosts

Summary

  • U.S. equity markets retreated Wednesday after the Federal Reserve signaled it intends to raise rates by late 2023 - sooner than their previous timeline - but otherwise held steady.

  • Finishing lower for the second-straight day, the S&P 500 declined by 0.6% today while the Mid-Cap 400 finished lower by 0.7% and the Small-Cap 600 declined 0.1%.

  • Real estate equities were also under pressure today as the Equity REIT Index finished off by 0.7% with 15-of-19 property sectors in negative territory but Mortgage REITs gained 0.8%.

  • Housing Starts rose less than expected in May as supply chain issues have constrained supply growth. The NAR published an analysis today showing that new-home construction is 6.8 million units short of what was needed to meet household-formation growth.

  • Three REITs boosted their dividends over the last 24 hours including net lease REIT Realty Income (O), and mortgage REITs MFA Financial (MFA) and AG Mortgage (MITT).

Real Estate Daily Recap

U.S. equity markets retreated Wednesday after the Federal Reserve signaled that it will look to raise rates by late 2023 - marginally shifting up their previous timeline - but otherwise held steady in their support for financial markets. Finishing lower for the second-straight day, the S&P 500 (SPY) declined by 0.6% today while the Mid-Cap 400 (MDY) finished lower by 0.7% and the Small-Cap 600 (SLY) declined 0.1%. Real estate equities were also under pressure today as the Equity REIT Index finished off by 0.7% with 15 of 19 property sectors in negative territory while the Mortgage REIT Index gained 0.8%.

The modest acceleration in the Fed's "lift off" plans sent the 10-Year Treasury Yield higher by 7 basis points to close at 1.57%, bouncing back after closing at 3-month lows last week as Fed Chair Powell commented, "You can think about this meeting that we had as the ‘talking about talking about tapering." All eleven GICS equity sectors finished in negative territory today, dragged on the downside by the Utilities (XLU), Consumer Staples (XLP), and Materials (XLB) sectors. Homebuilders and the broader Hoya Capital Housing Index were lower today following mixed Housing Starts data and ahead of earnings results this afternoon from Lennar (LEN).

As discussed yesterday in Homebuilders: Opportunity in Cool Down, the scorching-hot single-family housing market has finally cooled in recent months as record-low housing supply and soaring home prices have forced potential buyers to pause their home buying search while builders continue to be held-back by supply chain constraints. Today, the BLS reported that Housing Starts rose less-than-expected in May to a 1.572M annualized rate, rising from last month but still shy of the 1.630M units expected. The NAR published an analysis today showing that new-home construction in the U.S. is 6.8 million units short of what was needed to meet household-formation growth.

Commercial Equity REITs

Another day, another REIT dividend increase. Net lease REIT Realty Income (O) declared a $0.2355/share monthly dividend, a 0.2% increase from its prior dividend of $0.2350, representing a forward yield of roughly 4.1%. This was the second dividend boost of the year for Realty Income. 63 equity REITs have now raised their payouts this year, the majority of which have come from REITs that also boosted their payouts in 2020.

Cell Tower: American Tower (AMT) announced today that it will sell a 10% stake in its European unit to the Allianz European Infrastructure Fund. The transaction - which is expected to close in Q3 - is valued at nearly $650M, implying an enterprise value for ATC Europe of nearly $11B. American Tower keeps managerial and operational control over ATC Europe, while Allianz will get seats on ATC Europe's board, along with certain governance rights. Elsewhere, Crown Castle (CCI) priced $750 million of 2.50% senior notes due 2031. This afternoon, we'll publish our updated report on the Cell Tower sector on The REIT Forum which will analyze 1Q earnings reports, recent acquisitions, and the status of the ongoing 5G rollout.

Mortgage REITs

Per our Mortgage REIT Trackeravailable to The REIT Forum subscribers, residential mREITs finished higher by 1.3% but remain lower by 0.5% this week. Commercial mREITs were higher by 0.6% and are now higher by 0.3% this week. MFA Financial (MFA) gained 4.6% after it boosted its dividend by 33% to $0.10/share up from its prior dividend rate of $0.07, representing a forward yield of roughly 8.8% AG Mortgage Investment Trust (MITT) gained nearly 3% after it boosted its dividend by 17% to $0.07/share, up from its prior dividend rate of $0.06, representing a forward yield of roughly 6.1%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished flat today, on average, but underperformed their respective common stock issues by an average of 0.24%. So far in 2021, REIT Preferred stocks are higher by 9.44% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.01% and trades at a slight premium to par value. TPG RE Finance (TRTX) announced that it has redeemed all 9M outstanding 11% Series B Cumulative Redeemable Preferred Stock for approximately $247.5M. Over in the bond markets, Apollo Commercial (ARI) priced a private offering of $500M in aggregate principal amount of 4.625% Senior Secured Notes due 2029.

Economic Data This Week

We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

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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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