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  • Alex Pettee, CFA

Mall Earnings • Selloff Extends • REIT Dividend Boost

Summary

  • U.S. equity markets were broadly lower again Tuesday as geopolitical concerns in the Middle East and energy supply issues from the Colonial Pipeline added to investor concerns over inflation.

  • Following declines of 1.0% yesterday, the S&P 500 finished lower by another 0.9% today while the Mid-Cap 400 declined 0.9% and the Small-Cap 600 fell 0.7%.

  • Real estate equities were broadly lower toady as the Equity REIT Index finished lower by 1.3% with 18 of 19 property sectors in negative territory while Mortgage REITs declined 1.3%.

  • Mall REITs reported another rough quarter in Q1 as occupancy rates continued to decline with no bottom in sight yet. Simon Property dipped more than 3% despite raising its full-year FFO guidance.

  • After the close today, shopping center REIT Site Centers (SITC) boosted its dividend for the second time this year. 53 equity REITs and 18 mortgage REITs have increased their dividend this year which is higher than the full-year total for 2020.Real Estate Daily Recap

U.S. equity markets were broadly lower again Tuesday as geopolitical concerns in the Middle East and energy supply issues from the Colonial Pipeline added to investor concerns over mounting price pressures. Following declines of 1.0% yesterday, the S&P 500 ETF (SPY) finished lower by another 0.9% today while the Mid-Cap 400 (MDY) declined 0.9% and the Small-Cap 600 (SLY) fell 0.7%. The tech-heavy Nasdaq 100 (QQQ) finished lower by 0.1% after trading sharply lower earlier in the day. Real estate equities were broadly lower toady as the broad-based Equity REIT ETFs (VNQ) finished lower by 1.3% with 18 of 19 property sectors in negative territory while Mortgage REITs (REM) declined by 1.3%.

Ten of the eleven GICS equity sectors finished lower on the day with Materials (XLB) as the lone sector in positive territory as commodity prices continued to march higher despite the broader sell-off. Mounting tensions between Israelis and Palestinians have contributed to the pressure on global equity markets in recent days while the shutdown of the Colonial Pipeline has sparked concerns stateside about energy supply and prices. The Energy (XLE) sector was the laggard toady but remains the strongest-performing GICS sector of 2021. All eyes will be on inflation data tomorrow morning as the CPI report is expected to show the sharpest year-over-year rise since 2008.

Commercial Equity REITs

Malls: Simon Property (SPG) dipped 3.2% despite reporting improving results in Q1 and boosting its full-year outlook. SPG noted a sequential improvement in same-store NOI to -8.4% in Q1 and boosted its full-year FFO growth outlook to 7.0% from its prior outlook for 5.7% growth. Washington Prime (WPG) dipped more than 6% after reporting that its NOI growth declined sequentially in Q1 to -17.4% from -19.0% last quarter. Macerich (MAC) was roughly flat after it affirmed its previously-reduced guidance calling for a FFO decline of another 13.4% in 2021 following the 39% plunge last year. Results across the sector indicated that occupancy rates have not yet bottomed, following another 70 basis points in Q1 and 350 bps from last year.

Shopping Centers: After the close today, shopping center REIT Site Centers (SITC) declared a $0.12/share quarterly dividend, a 9% increase from prior dividend of $0.11 and its second increase this year. In all, 53 equity REITs and 18 mortgage REITs have increased their dividend this year which is higher than the full-year total for 2020. Last week week, we published our REIT Earnings Halftime Report. The major themes this quarter have been "Beat and Boost" and the revival of long-dormant "Animal Spirits." Roughly 85% of REITs topped consensus earnings estimates. Of the 83 REITs and homebuilders that provide full-year guidance, nearly two-thirds raised their full-year estimates.

Casinos: Yesterday, we published Vegas Is Back, Baby. One of the best-performing REIT sectors since the start of the pandemic, Casino REITs have proven to be surprisingly resilient despite the intense struggles faced by the broader leisure industry. Earnings reports from Casino REITs and operators painted a particularly bright picture for the tourism recovery. Caesars noted that "weekends in Vegas are sold-out for the foreseeable future." Fueled by spotless rent collection and accretive acquisitions, these REITs reported strong momentum in early 2021 with AFFO growth averaging nearly 9% in Q1. VICI Properties (VICI) projects 12.5% growth this year. In this report, we examined trends in the industry and the inflation sensitivity of these REITs.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 1.0% today and are now off by 2.4% this week. Commercial mREITs finished lower by 2.1% to push their weekly declines to 3.3%. Lument Finance (LFT) - formerly Hunt Companies - gained 1.3% after reporting better-than-expected Q1 results. Cherry Hill Mortgage (CHMI) declined by 5.3% after reporting that its Book Value Per Share ("BVPS") declined by about 3% in Q1, below that of most of its peers. AFG Gamma (AFCG) gained nearly 3% after the cannabis-focused mREIT reported its first results as a publicly-traded company. Broadmark Realty (BRMK) finished lower after reporting mixed Q1 results.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.70% today, on average, but outperformed their respective common stock issues by an average of 0.86%. So far in 2021, REIT Preferred stocks are higher by 6.70% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.28% and trades at a slight premium to par value.

Economic Data This Week

Inflation and retail sales data highlight this week's economic calendar. On Wednesday, we'll see the Consumer Price Index for April which is expected to show the sharpest year-over-year rise since 2008 at 3.6%. On Thursday, we'll see the Producer Price Index which is also expected to show the sharpest year-over-year rise since 2008 at 6.0%. On Friday, we'll see the Retail Sales report for April which is expected to climb to new record-highs following the stimulus-aided surge in March. We'll also be watching for shifts in inflation expectations and consumer confidence on Friday in the Survey of Consumers as well as 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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