• Alex Pettee, CFA

REIT Dividend Hikes • COVID Concern • Homebuilders Lead

Summary

  • U.S. equity markets declined Wednesday on a "risk-off" day following a mixed slate of retail earnings reports and concern over a stalling momentum in the trends of declining COVID cases.

  • Hanging onto modest week-to-date gains, the S&P 500 declined 0.2% today while the Mid-Cap 400 slipped 0.8% and the Small-Cap 600 finished lower by 1.1%.

  • Real estate equities were among the leaders today as the Equity REIT Index gained 0.3% today with 12-of-19 property sectors in positive territory while Mortgage REITs slipped 0.8%.

  • Realty Income (O) and Kite Realty (KRG) each hiked their dividend for the fourth time this year, two of over 110 REITs that have raised their dividend so far in 2021.

  • Following strong results yesterday from Home Depot, home improvement retailer Lowe’s (LOW) gained after smashing sales estimates and raised its full-year outlook, citing renewed strength in the DIY home improvement segment.

Income Builder Daily Recap

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U.S. equity markets declined Wednesday on a "risk-off" day following a mixed slate of retail earnings reports and concern over a stalling momentum in the trends of declining COVID cases. Hanging onto modest week-to-date gains, the S&P 500 declined 0.2% today while the Mid-Cap 400 slipped 0.8% and the Small-Cap 600 finished lower by 1.1%. Real estate equities were among the leaders today as the Equity REIT Index gained 0.3% today with 12-of-19 property sectors in positive territory while Mortgage REITs slipped 0.8%.


Seven of the eleven GICS equity sectors were lower on the day with the economically-sensitive Energy (XLE) and Financials (XLF) dragging on the downside while the 10-Year Treasury Yield slipped 3 basis points to close at 1.60% amid concern over a similar "winter surge" of COVID cases as last year. Homebuilders were a bright spot today despite mixed housing starts data this morning that showed that supply growth remains structurally constrained despite the ongoing surge in rents and home values.

Following strong results yesterday from Home Depot (HD), competing home improvement retailer Lowe’s (LOW) was among the leaders after it smashed its consensus comparable sales estimates and raised its full-year outlook. LOW reported that comparable sales increased 2.2% from the prior year - and 34% higher than the mark from 2019 – which was well ahead of the consensus estimate of -2.5%. Comparable sales were up 2.6% for the U.S. business during the quarter. Gross margin came in at 33.1% of sales vs. 32.7% a year ago and the consensus estimate of 32.8%. Citing renewed strength in the DIY home improvement segment, comp transactions increased 16.4% last year, which resulted in a two-year comp transaction increase of 7.7%.

Equity REIT Daily Recap

Data Center: Today, we published Data Center REITs: Merger Mania. The Data Center REIT sector has been substantially and rapidly transformed as the three largest data center portfolio acquisitions in history have been announced in just the past several months. We predicted an impending M&A boom, but expected Digital Realty (DLR) and Equinix (EQIX) to scoop-up their smaller peers. Instead, CyrusOne (CONE) and QTS have been taken private while American Tower (AMT) acquired CoreSite (COR) The lack of serious interest from DLR and EQIX - which are sitting on a mountain of dry powder - suggests that these REITs are working on a major M&A deal of their own and a mega-merger between the two isn't outside the realm of possibility.

Net Lease: Realty Income (O) hiked its dividend for the fourth time this year, declaring a $0.246/share monthly dividend, a 4.2% increase from prior dividend of $0.236, representing a forward yield of forward yield roughly 4.1%. 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 with more than 110 equity REITs boosting their payouts.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs slipped 0.7% today while commercial mREITs ended lower by 0.8%. On an otherwise quiet day of mREIT newsflow, AG Mortgage (MITT) dipped another 7.5% today following a 7M share secondary offering of its common stock and plans to use the proceeds to acquire four newly originated non-agency residential mortgage loan pools totaling $530.7M. The average residential mortgage REIT now pays a dividend yield of 9.12% while the average commercial mortgage REIT pays a dividend yield of 6.14%.

REIT Preferreds & Capital Raising

Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds gained 0.09% today, on average, and are now higher by 8.8% on a price-return basis with total returns of roughly 14%. It was a busy day of REIT capital raising as CubeSmart (CUBE) priced its previously-announced secondary common stock offering at $51/share, raising gross proceeds of approximately $688.5m and expects to use all of the net proceeds of the offering to fund a portion of the approximately $1.648 billion acquisition of Storage West. Elsewhere, Welltower (WELL) priced $500m of 2.75% notes due 2032 while Ventas (VTR) priced a private offering in Canada of $475M of 2.45% Senior Notes and $300M of 3.30% Senior Notes due 2031.

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 published this weekend.


We're excited to announce the launch of our new investment research service here on Seeking Alpha - Hoya Capital Income Builder. We've put together a great team of contributors from across the REIT, dividend, and ETF industry, so whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and a comprehensive suite of tools and models to help build sustainable portfolio income targeting premium dividend yields of up to 10%. And of course, subscribers receive complete access to our investment research - including reports that are never published elsewhere - from Hoya Capital and our team of contributors.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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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