• Alex Pettee, CFA

Record Week • Housing Heats-Up • REIT Dividend Boost

Summary

  • U.S. equity markets continued to rally Friday - closing at fresh record highs - after housing data and corporate earnings reports showed continued strength behind the domestic economic recovery.

  • Finishing the week with gains of roughly 1.5%, the S&P 500 finished higher by 0.3% today while the Mid-Cap 400 gained 0.7% and the Small-Cap 600 climbed 0.4%.

  • Real estate equities finished a strong week with additional gains as the broad-based Equity REIT Index gained 0.2% today with 14-of-19 property sectors in positive territory.

  • Net lease REIT Agree Realty (ADC) declared a $0.217/share monthly dividend, a 4.8% increase from its prior dividend rate. A record-setting 51 equity REITs raised their dividend in Q1.

  • Housing Starts climbed to the strongest rate in nearly 15 years in March as the red-hot U.S. housing industry exhibited signs of reacceleration following a brief weather-related pause in February.

Real Estate Daily Recap

U.S. equity markets continued to rally Friday - closing at fresh record highs -after housing data and corporate earnings reports showed continued strength behind the domestic economic recovery. Finishing the week with gains of roughly 1.5%, the S&P 500 ETF (SPY) finished higher by 0.3% today while the Mid-Cap 400 (MDY) gained 0.7% and the Small-Cap 600 (SLY) climbed 0.4%. Real estate equities finished a strong week with additional gains as the broad-based Equity REIT ETFs (VNQ) gained 0.2% today with 14-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) finished higher by 0.5%.

The 10-Year Treasury Yield ticked higher today but finished the week lower by 9 basis points as investors backed off the consensus bets on rising inflation amid ongoing COVID concerns in Europe and Asia. Eight of the eleven GICS equity sectors finished higher on the day, led to the upside by the Materials (XLB), Utilities (XLU), and Financials (XLF) sectors. Stronger-than-expected housing starts and permits data lifted homebuilders and the broader Hoya Capital Housing Index to fresh record highs as the U.S. housing sector has remained a resilient engine of domestic economic growth since mid-2020.

On that point, Housing Starts climbed to the strongest rate in nearly 15 years in March as the red-hot U.S. housing industry exhibited signs of reacceleration following a brief weather-related pause in February. Private housing starts were 37.0% higher than last year while Building Permits jumped 30.2% - each above consensus estimates. The gains during the pandemic have been powered primarily by a surge in single-family construction, which was 40.7% higher than last year. Starts on multifamily units, meanwhile, bounced back in March but are still lower by about 14% on a trailing-twelve-month basis.

Commercial Equity REITs

Today we published Healthcare REITs: Vaccines Avert Dark Decade. Healthcare REITs - particularly senior housing and long-term care facilities - have been revived by the early vaccination success. Aggravated by policy errors, 34% of all COVID deaths were among nursing home residents, but new coronavirus cases have since been nearly eradicated in senior living facilities. Risks remain, but long-term fundamentals remain more compelling than other troubled property sectors. While unquestionably devastating, the pandemic did not compromise the sector's favorable demographic trends.

Just a few weeks after the final REITs reported Q4 earnings results, we're already set to begin Q1 real estate earnings season next week with results from a half-dozen REITs including industrial REITs Prologis (PLD), Redford Industrial (REXR), office REITs Brandywine (BDN) and SL Green (SLG), and cell tower REIT Crown Castle (CCI). REITs are off to a hot start to 2021 with a record-setting 51 increases in the first quarter including a second boost from net lease REIT Agree Realty (ADC) yesterday, which declared a $0.217/share monthly dividend, a 4.8% increase from its prior dividend rate.

Prison: CoreCivic (CXW) jumped 3.8% after announcing that it reached a settlement in a shareholder lawsuit that was filed in August 2016 after the company's stock price sank following an August 2016 Department of Justice memorandum instructed the Federal Bureau of Prisons to reduce and ultimately end the use of privately operated prisons. The company will pay $56M in return for dismissal of the case with prejudice. Yesterday, Washington State announced a ban on private prisons this week. GEO Group (GEO) owns a 1,575-bed facility under a contract with U.S. ICE, which is the only private prison in the state. The bill would allow GEO to continue operating the jail until its contract with ICE expires in 2025.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.5% today but ended the week lower by 0.4%. Commercial mREITs were higher by 0.5% today to push their weekly gains to 2.6%. Ellington Financial (EFC) was lower today after it announced that its estimated book value per share was $18.16 as of March 31, 2021, up 4.4% from the end of 4Q20. Redwood Trust (RWT) gained 0.5% today after providing preliminary Q1 results, noting that it estimates that the fair value of its securities investment portfolio increased approximately 5%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by -0.08 today, on average, and underperformed their respective common stock issues by an average of -0.41%. Today, Digital Realty (DLR) announced plans to redeem all 8.05M shares of its 6.625% Series C Preferred Stock (DLR.PC) on May 17, 2021. The security was callable beginning on May 15, 2021. So far in 2021, REIT Preferred stocks are higher by 6.41% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.30% and trades at a slight discount to par value.

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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