• Alex Pettee, CFA

Fresh Records • REIT Dividend Increases • Week Ahead

Summary

  • U.S. equity markets rallied to fresh record highs Monday as ongoing vaccine distribution issues in Europe pressured interest rates ahead of a busy week of economic data and Federal Reserve commentary.

  • Following gains of 2.7% last week, the S&P 500 finished higher by another 0.6% and the Dow Jones Industrial Average added 175 points while the tech-heavy Nasdaq 100 rallied 1.0%.

  • Led by the "reopening-sensitive" sectors, real estate equities continued their recent outperformance as the broad-based Equity REIT ETFs finished higher by 1.4% today with 18-of-19 property sectors in positive territory.

  • Three more equity REITs boosting their dividends this morning: Casino REIT MGM Growth Properties (MGP), cannabis REIT Innovative Industrial Properties (IIPR), and healthcare REIT CareTrust (CTRE).

  • We've now seen 46 equity REITs and 17 mortgage REITs raise their dividend through the first ten weeks of 2021 - already surpassing the combined full-year total from last year.

Real Estate Daily Recap

U.S. equity markets rallied to fresh record highs Monday as ongoing vaccine distribution issues in Europe pressured interest rates ahead of a busy week of economic data and the Federal Reserve's monetary policy statement. Following gains of 2.7% last week, the S&P 500 ETF (SPY) finished higher by another 0.6% and the Dow Jones Industrial Average (DIA) added 175 points while the tech-heavy Nasdaq 100 (QQQ) rallied 1.0%. Real estate equities continued their recent outperformance as the broad-based Equity REIT ETFs (VNQ) finished higher by 1.4% today with 18-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 0.5%.

As discussed in our Real Estate Weekly Outlook, the "reopening trade" has seemingly evolved into an "American exceptionalism" trade over the past week as domestic-focused, pro-cyclical segments of the equity market - notably Mid-Caps (MDY) and Small-Caps (SLY) - have delivered notable recent outperformance. Nine of the eleven GICS equity sectors finished in positive territory today led by the more yield-sensitive segments of the equity market including Consumer Discretionary (XLY) and Utilities (XLU) while Homebuilders and the broader Hoya Capital Housing Index delivered a strong day as well.

We have another busy week of economic data in the week ahead. On Tuesday, we'll see Retail Sales data which is expected to show a mild pull-back in spending in February but will almost surely show a considerable acceleration in March after the current wave of stimulus checks. We'll also see NAHB Homebuilder Sentiment data which is expected to remain near historically high levels. Then on Wednesday, we'll see Building Permits and Housing Starts as well as the FOMC Interest Rate decision and closely-watched subsequent press conference by Fed Chair Powell.

Commercial Equity REITs

Today, we published REITs: This Time Was Different. The Great Financial Crisis resulted in long-term, lasting pain for the real estate sector, but "this time was different" for most REITs due to harsh lessons learned from past crises. Despite early struggles with rent collection, REITs' strong balance sheets and access-to-capital prevented the type of shareholder dilution that resulted in a "lost decade" for REITs in the GFC's aftermath.

REITs recorded a sequential improvement across all critical metrics in Q4, powering a historic wave of dividend growth in early 2021. That wave of growth continued today with three more equity REITs boosting their dividends. Casino REIT MGM Growth Properties (MGP) boosted its dividend by 1.5%, cannabis REIT Innovative Industrial Properties (IIPR) boosted its dividend by 6.5%, and healthcare REIT CareTrust (CTRE) raised its dividend by 6.0%. We've now seen 46 equity REITs and 17 mortgage REITs raise their dividend through the first ten weeks of 2021.

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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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