• Alex Pettee, CFA

REITs Lead • Dividend Boosts • "Meme Mania" Lifts Malls

Summary

  • U.S. equity markets were mixed Tuesday ahead of a busy week of employment data as investors rotated away from large-cap technology stocks into more economically-sensitive segments of the equity market.

  • Following gains of 1.2% last week, the S&P 500 finished lower by 0.1% today while the Mid-Cap 400 gained 0.6% while the Small-Cap 600 jumped 1.6%.

  • Real estate equities were among the leaders today as the Equity REIT Index finished higher by 1.8% with all 19 property sectors in positive territory while the Mortgage REIT Index.

  • Healthcare REIT Alexandria Real Estate (ARE) gained after it became the 59th equity REIT to raise its dividend so far this year. Hotel REIT Ashford Hospitality (AHT) jumped 20% on the day after.

  • "Meme stock" mania continued today, and appears to have swept up troubled mall REIT Washington Prime (WPG), which surged more than 100% as it struggles to avoid bankruptcy.

Real Estate Daily Recap

U.S. equity markets were mixed Tuesday ahead of a busy week of employment data as investors rotated away from large-cap technology stocks into more economically-sensitive segments of the equity market. Following gains of 1.2% last week, the S&P 500 (SPY) finished lower by 0.1% today while the Mid-Cap 400 (MDY) gained 0.6% while the Small-Cap 600 (SLY) jumped 1.6%. Real estate equities were among the leaders today as the Equity REIT Index finished higher by 1.8% with all 19 property sectors in positive territory while the Mortgage REIT Index gained 1.2%.

As discussed in our Real Estate Weekly Outlook, a sense of optimism has returned to equity markets as inflation expectations have eased following a streak of lukewarm economic data and as massive new government spending programs face diminishing public support. Five of the eleven GICS equity sectors finished higher on the day, led to the upside by the Energy (XLE), Real Estate (XLRE), and Materials (XLB) sectors while Healthcare (XLV) stocks lagged. Residential REITs led the Hoya Capital Housing Index higher on the day as data recent data shows that rents are rising at the fastest rate in a half-decade, trends that we discussed today in our published report Apartment REITs: Happy Landlords, Unhappy Renters.


We have another busy week of earnings reports and economic data in the Memorial Day-shortened week ahead, headlined by ADP Employment data on Thursday (normally on Wednesday), Jobless Claims on Thursday, and 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. We'll also see Construction Spending data on Tuesday, and a flurry of Purchasing Managers' Index (PMI) data throughout the week.

Commercial Equity REITs

Apartments: After lagging in 2020, Apartment REITs have been one of the best-performing property sectors this year as the coronavirus vaccine rollout has halted the "urban exodus" and stabilized rental rates in coastal markets. Sunbelt and suburban markets, meanwhile, are reporting record-high rates of rent growth with nearly all of the 60 largest apartment markets reporting an acceleration in rent growth over the past several quarters. Per the Zillow (NASDAQ:Z) ZORI Rent Index, the median U.S. apartment market has seen an acceleration in rent growth over the last year to 4.1% - the highest since 2016 - even as many of the largest markets continue to report declining rents.

Healthcare: Alexandria Real Estate (ARE) gained 1.4% today after it became the 59th equity REIT to raise its dividend so far this year, declaring a $1.12/share quarterly dividend, a 2.8% increase from its prior dividend of $1.09. ARE was one of 52 equity REITs that raised its dividend last year. The majority of REITs that have raised their payouts this year were those that either raised or maintained their dividends last year - primarily those in the residential, technology, and industrial property sectors.

Malls: Troubled mall REIT Washington Prime Group (WPG) surged another 100% today, adding to its 18% gains last week as it appears to have been swept-up in "Meme Stock Mania." WPG negotiating another forbearance extension from its lenders last week - the seventh such extension - which brings the new expiration to June 2nd. WPG - which is also the target of a newly-launched class action lawsuit - is seeking to avoid becoming the third mall REIT to file for Chapter 11 bankruptcy in the past year following similar actions from CBL Properties (OTCPK:CBLAQ) and Pennsylvania REIT (PEI).

Hotels: Ashford Hospitality (AHT) jumped 20% on the day after the hotel REIT disclosed that it issued 7.54M of its shares in exchange for a total of 849.4K shares of preferred stock. The interest rates on the preferred stock in the exchange ranged from 7.375% to 8.45%, according to AHT's SEC filing. Hotel REITs focused on the lower-end of the price spectrum - notably Apple Hospitality (APLE) and CorePoint Lodging (CPLG) saw occupancy rates that are back within shouting distance of pre-pandemic levels by the end of Q1. Upscale hotels with more focus on business travel - including Pebblebrook (PEB), Host Hotels (HST), and Park Hotels (PK) - saw muted occupancy gains in Q1.

Cell Tower: American Tower (AMT) gained 1.3% today after announcing that it has closed the first tranche of its acquisition of Telxius Towers, comprising nearly 20,000 communications sites in Germany and Spain. for €6.2B (about $7.6B), funded by cash on hand and borrowings under its revolving credit facilities and term loans. American Tower agreed to buy Telxius in January for roughly $9.4B deal and another 4,000 rooftop communications sites in Germany are expected to close in the third quarter. These Cell Tower REITs own 50-80% of the 100-150k investment-grade macro cell towers in the United States and roughly 20-30% of towers in Europe.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.2% today after ending last week with gains of 0.6%. Commercial mREITs gained 1.4% today after gaining 0.1% last week. On a slow day of newsflow in the mREIT space, ACRES Realty (ACR) and Western Asset Mortgage (WMC) led to the upside while Sachem Capital (SACH) and Tremont Mortgage (TRMT) were laggards.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 1.05% today, on average, but underperformed their respective common stock issues by an average of 2.88% due to the effects of a surge from troubled mall REIT Washington Prime (WPG). So far in 2021, REIT Preferred stocks are higher by 8.42% 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.

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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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