• Alex Pettee, CFA

Fresh Records • REIT Dividend Boost • Week Ahead

Summary

  • U.S. equity markets rallied to fresh record-highs Monday, lifted by the reaction to the stronger-than-expected jobs report last Friday and a record-high reading on Services PMI data this morning.

  • Adding to gains of 1.2% last week, the S&P 500 finished higher by 1.4% today while the Dow Jones Industrial Average rallied 374 points. The tech-heavy Nasdaq 100 gained another.

  • Real estate equities were mixed today as the broad-based Equity REIT Index was higher by 0.4% with 9-of-19 property sectors in positive territory while the Mortgage REITs declined by 0.5%.

  • Mortgage REIT Ellington Financial (EFC) jumped nearly 5% after it boosted its dividend by 40% to $0.14/share - up from its prior dividend of $0.10. 51 equity REITs and 17 mortgage REITs have now boosted their payouts this year.

  • Net lease REIT Netstreit (NTST) gained nearly 3% today after providing a business update in which it raised its external growth target for full-year 2021. Fueled by recovering valuations and ample access to capital, net lease REITs are back in "growth mode."

Real Estate Daily Recap

U.S. equity markets rallied to fresh record-highs Monday, lifted by the reaction to the stronger-than-expected jobs report last Friday and a record-high reading on Services PMI data this morning. Adding to gains of 1.2% last week, the S&P 500 ETF (SPY) finished higher by 1.4% today while the Dow Jones Industrial Average (DJI) rallied 374 points. The tech-heavy Nasdaq 100 (QQQ) gained another 2.0%. Real estate equities were mixed today as the broad-based Equity REIT ETFs (VNQ) was higher by 0.4% with 9-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) finished lower by 0.5%.

As discussed in our Real Estate Weekly Outlook, the BLS reported last Friday - to a closed equity market - that the U.S. economy added 916k jobs in March - well above the estimates of 650k. The strong economic news continued this morning when the ISM reported that Services PMI jumped to 63.7 in March - the highest level ever for that index. Ten of the eleven GICS equity sectors were higher on the day, led to the upside by the Consumer Discretionary (XLY), Communications (XLC), and Technology (XLK) sectors.

Commercial Equity REITs

Today we published Hotel REITs: Spring Break Is Back. Powered by Spring Break demand and accelerated by the vaccine roll-out, the recovery in domestic leisure travel - and hotel occupancy - has picked up meaningfully over the past month. TSA data showed that travel is now at 60% of pre-pandemic levels after bottoming at less than 5% while STR reported that hotel occupancy has recovered to 80% of pre-pandemic levels. Optimism for a post-pandemic recovery has sent hotel REITs surging since late-2020, but we maintain our outlook that the recovery will be uneven across market segments, and believe that suburban-focused and leisure-oriented properties will bounce far faster than urban business-focused hotels.

Net Lease: Netstreit (NTST) gained 2.7% today after providing a business update in which it raised its external growth target for full-year 2021. After completing $89.5M in Q1, NTST now expects net acquisition activity of $360M for the full year, up from its previous $320M estimate. Fueled by recovering valuations and ample access to capital, several net lease REITs are back to doing what they do best as the vaccine-driven rebound "reopened the spigot" for the well-capitalized REITs at an impressive pace. Net lease REITs acquired more than $2 billion of real estate assets, on net, in the fourth quarter, a sharp acceleration following the slowdown in mid-2021 to end the year with net acquisitions of roughly $5.5 billion. Among the seven REITs that provided guidance, these REITs see acquisitions eclipsing $8 billion for 2021.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by -0.6% today after gaining 0.3% last week. Commercial mREITs declined by -0.3% today following gains of 0.2% last week. Colony Credit Real Estate (CLNC) finished lower by about 1% today after announcing that it reached an agreement with Colony Capital (CLNY) to end Colony's external management agreement with the mortgage REIT. The transaction was consistent with CLNC's previously announced strategic alternative review process and is consistent with Colony Capital's digital focus. Colony Credit expects to start operating under a new name soon after the closing of the internalization transaction.

The wave of dividend boosts continued in the mREIT sector as well today. Ellington Financial (EFC) jumped nearly 5% after it boosted its dividend by 40% to $0.14/share - up from its prior dividend of $0.10 - but still a cent below its pre-pandemic distribution rate of $0.15. Helped by 17 mREIT dividend increases this year, the average residential mREIT is currently paying a forward dividend yield of 8.1% while the average commercial mREIT is yielding 6.8%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.17% today, on average, but underperformed their respective common stock issues by an average of 0.32%. So far in 2021, REIT Preferred stocks are higher by 6.58% on a price-return basis. The average REIT preferred currently pays a dividend yield of 6.30% and trades at a slight discount to par value.

Economic Calendar For Week Ahead

Inflation and PMI data highlight the economic calendar in the week ahead with the Services PMI report released today and the Producer Price Index report on Friday. Inflation expectations - along with longer-term Treasury Yields - have rebounded sharply since Election Day on the prospects for additional fiscal stimulus and on improving economic data, but recent inflation reports have yet to show a broad-based uptick in either consumer or producer price levels. We'll also be watching the weekly MBA Mortgage Application data on Wednesday and Jobless Claims data on Thursday.

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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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