• Alex Pettee, CFA

REITs Getting Squeezed • Dividend Increases • Jobs Day Ahead

Summary

  • U.S. equity markets were lower Thursday despite an encouraging slate of employment data showing that jobless claims retreated to post-pandemic lows as the surge in high-flying "meme stocks" started to unwind.

  • Giving up its week-to-date gains, the S&P 500 retreated by 0.4% today while the Mid-Cap 400 declined 0.6% and the Small-Cap 600 finished lower by 0.9%.

  • Real estate equities were also under pressure today as the Equity REIT Index finished off by 0.4% with 15-of-19 property sectors in negative territory while Mortgage REITs declined 0.3%.

  • Net lease REIT Essential Properties (EPRT) jumped after it raised its full-year guidance and boosted its dividend, becoming the 61st equity REIT to increase its dividend so far in 2021.

  • Nine REITs have jumped more than 10% so far this week. Prison REIT GEO Group (GEO) along with CoreCivic (CXW) - which have been targets of retail "short squeeze" traders - jumped more than 5% today.

Real Estate Daily Recap

U.S. equity markets were lower Thursday despite an encouraging slate of employment data showing that jobless claims retreated to post-pandemic lows as the surge in high-flying "meme stocks" started to unwind. Giving up its week-to-date gains, the S&P 500 (SPY) retreated by 0.4% today while the Mid-Cap 400 (MDY) declined 0.6% and the Small-Cap 600 (SLY) finished lower by 0.9%. Real estate equities were also under pressure today as the Equity REIT Index finished off by 0.4% with 15 of 19 property sectors in negative territory while the Mortgage REIT Index declined by 0.3%.

Bond markets were under a bit of pressure today ahead of the closely watched nonfarm payrolls report on Friday morning with the 10-Year Treasury Yield climbing back above 1.60% after the Federal Reserve announced plans to sell some corporate bonds it purchased as part of its emergency measures. Underscored by AMC Entertainment's (AMC) 18% plunge, "meme-stocks" pulled back today following a dramatic surge earlier in the week with similar patterns as the short-squeeze frenzy back in late January. Six of the eleven GICS equity sectors finished on the downside today, weighed down by the Consumer Discretionary (XLY) and Technology (XLK) sectors.

Commercial Equity REITs

Net Lease: Essential Properties (EPRT) jumped more than 2% today after it raised its guidance for FY21, and now sees AFFO growth of 13.5% this year. EPRT also declared a $0.25/share quarterly dividend, a 4.2% increase from its prior dividend of $0.24. EPRT is the 61st equity REIT to raise its dividend this year and joined five other net lease REITs that have raised their payouts in 2021. EPRT was also one of 52 equity REITs that raised its dividend last year.

Office: Corporate Office Properties (OFC) finished lower by 0.6% after it announced that it formed a new joint venture with funds affiliated with Blackstone Real Estate to acquire two single-tenant, data center shell properties totaling 432K sq. feet and valued at $119M. As discussed in The New Normal, Corporate Office - which owns a mix of office and data center facilities leased primarily to government and defense industry tenants - is one of just three office REITs expecting positive FFO growth this year.

Malls: Washington Prime Group (WPG) - which remains higher by nearly 100% this week amid the "meme mania" trends - finished lower by 5% today after disclosing another week-long extension to its forbearance pacts with its lenders. Prison REIT GEO Group (GEO) along with CoreCivic (CXW) - which have also been targets of retail "short squeeze" traders - jumped more than 5% today. Earlier this year in REITs Getting Short Squeezed, we analyzed the most heavily-shorted REITs. (Note: Data below as of January 27, 2021 - will be updated in the Weekly Outlook report published on Saturday)

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.4% today but remain higher by 0.8% on the week. Commercial mREITs were lower by 0.1% but remain higher by 1.6% this week. On another relatively slow day of newsflow in the mREIT sector, NexPoint Real Estate Finance (NREF) and Ares Commercial (ACRE) led the gains today while AG Mortgage (MITT) and iSTAR (STAR) were laggards.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.23% today, on average, but outperformed their respective common stock issues by an average of 0.61%. So far in 2021, REIT Preferred stocks are higher by 8.65% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.07% and trades at a slight premium to par value.

Economic Data This Week

The busy week of economic data concludes tomorrow with the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of 650k in May following a historically disappointing April report which was the largest "miss" relative to consensus estimates in several decades.


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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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