• Alex Pettee, CFA

REIT Dividend Boosts • Tax Hikes? • Week Ahead

Summary

  • U.S. equity markets rebounded Monday following their worst week since mid-June amid relief that tax hike proposals are less aggressive than feared ahead of a busy week of economic data.

  • Snapping a five-session losing streak, the S&P 500 climbed by 0.3% today while the Mid-Cap 400 advanced 0.6% and Small-Cap 600 gained 0.8%.

  • Real estate equities rebounded after their worst week in nearly a year as the Equity REIT Index climbed 0.7% today with 13-of-19 property sectors in positive territory while Mortgage REITs advanced 1.1%.

  • The wave of REIT dividend hikes continued today with another two REITs - Store Capital (STOR) and BRT Apartments (BRT) adding their name to the growing list of 103 REITs that have boosted their payouts this year.

  • The economic calendar heats up again in the week ahead, highlighted by CPI Index data on Tuesday, which is expected to show that consumer prices rose at a 5.3% annual rate in August.

Real Estate Daily Recap

U.S. equity markets rebounded Monday following their worst week since mid-June amid relief that revised tax hike proposals are less aggressive than feared - and face an uncertain path to approval - ahead of a busy week of inflation and retail sales data. Snapping a five-session losing streak, the S&P 500 climbed by 0.3% today while the Mid-Cap 400 advanced 0.6% and Small-Cap 600 gained 0.8%. Real estate equities rebounded after their worst week in nearly a year as the Equity REIT Index climbed 0.7% today with 13 of 19 property sectors in positive territory while Mortgage REITs advanced 1.1%.

As discussed in our Real Estate Weekly Outlook, equity markets are coming off their biggest weekly declines in four months amid mounting worries that economic growth has hit a soft patch and continued dislocations - and inflation - throughout the global supply chain. Nine of the eleven GICS equity sectors were higher on the day, led to the upside by the Energy (XLE) sector as Crude Oil prices climbed to a nearly two-month high. Meanwhile, the Biden Administration's tax-and-spending agenda faces a more uncertain future given the lingering inflationary concerns and slumping approval ratings, a relief for many investors given that earlier proposals called for significant tax increases on corporations and investment income.

The economic calendar heats up again in the week ahead, highlighted by CPI Index data on Tuesday, which is expected to show that consumer prices rose at a 5.3% annual rate in August, a slight moderation from last month's 5.4% rate which matched the largest jump since August 2008. On Thursday, we'll see Retail Sales data for August, which is expected to decline for the second straight month and continue a moderation from recent stimulus-driven record-highs in April. We'll also be watching Consumer Sentiment data on Friday after posting one of the largest declines on record last month, driven by concerns over inflation and the reacceleration in COVID cases in the U.S.

Equity REITs

The wave of REIT dividend hikes continued today with another two companies adding their name to the growing list of 103 REITs that have boosted their payouts this year. Store Capital (STOR) rallied more than 2% after it declared a $0.385/share quarterly dividend, a 6.9% increase from its prior dividend of $0.360, representing a forward yield of roughly 4.5%. Elsewhere, small-cap BRT Apartments (BRT) was flat today after declaring a $0.23/share quarterly dividend, a 4.5% increase from its prior dividend of $0.22, representing a forward yield of roughly 4.7%. Following the wave of pandemic-driven dividend cuts across the REIT sector last year, we've seen a similarly powerful wave of dividend increases this year.

Healthcare: Healthcare Trust of America (HTA) gained roughly 1% today after providing a business update, noting that it has closed on four medical office building investments in Q3 totaling $130 million. Diversified Healthcare (DHC) was also higher by 1% after providing a business update, noting that it has entered into a management agreement for seven senior housing communities with Northstar (OTC:NSTR). It also noted that August's month-end occupancy in its Five Star portfolio improved to 74.7%, a 100 basis point increase from the prior month.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.2% today after declining by 2.0% last week. Commercial mREITs gained 1.2% today after ending last week lower by 3.5%. Tremont Mortgage (TRMT) was slightly higher today after it announced that three proxy advisory firms - ISS, Glass Lewis, and Egan-Jones - have all recommended that shareholders vote “FOR” the previously-announced merger of TRMT with and into RMR Mortgage (RMRM). The average residential mortgage REIT now pays a dividend yield of 9.1% while the average commercial mortgage REIT pays a dividend yield of 6.9%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.02% today, on average, but underperformed their respective common stock issues by an average of 1.50%. So far in 2021, REIT Preferred stocks are higher by 11.12% on a price return basis. The average REIT preferred pays a current yield of 5.92% and trades at a slight premium to par value.

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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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