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  • Alex Pettee, CFA

Reopening Reversals • Dividend Boost • Construction Cools

Summary

  • U.S. equity markets finished broadly lower Tuesday as "reopening sensitive" stocks were slammed amid renewed COVID concerns after several European countries initiated another wave of lockdowns.

  • Backtracking from gains of 0.8% yesterday, the S&P 500 declined by 0.8% today while the Dow Jones Industrial Average slipped 308 points and the tech-heavy Nasdaq 100 declined by 0.5%.

  • Despite a strong day from the "essential" property sectors, real estate equities were mostly lower as well as the broad-based Equity REIT ETFs finished off by 0.2% with 12-of-19 property sectors lower.

  • Unseasonably harsh weather in the Southeast and Midwest, along with bottlenecks in the construction value chain, moderated the pace of new home construction in February as New Home Sales missed estimates.

  • Mortgage REIT AG Mortgage (MITT) finished boosting its dividend to $0.06/share, up 100% from its prior rate of $0.03, but still far below its pre-pandemic rate of $0.45. MITT is one of 17 mortgage REITs to raise their dividend so far this year.

Real Estate Daily Recap

U.S. equity markets finished broadly lower Tuesday as "reopening sensitive" stocks were slammed amid renewed COVID concerns after several European countries initiated another wave of lockdowns. Backtracking from gains of 0.8% yesterday, the S&P 500 ETF (SPY) declined by 0.8% today while the Dow Jones Industrial Average (DJI) slipped 308 points and the tech-heavy Nasdaq 100 (QQQ) declined by 0.5%. Despite a strong day from the "essential" property sectors, real estate equities were mostly lower as well as the broad-based Equity REIT ETFs (VNQ) finished off by 0.1% with 12-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) slipped 2.3%.

A reversal of the "reopening trade" was the theme today as COVID concerns dragged the 10-Year Treasury Yield lower by another 5 basis points while the recently outperforming Small-Caps (SLY) slid 3.6% and Mid-Caps (MDY) declined by 2.6%. Eight of the eleven GICS equity sectors finished in negative territory today as the economically-sensitive Materials (XLB) and Industrial (XLI) sectors dragged on the downside. Homebuilders dragged on the Hoya Capital Housing Index today despite another strong day from residential REITs, which have been beneficiaries of the recent uptick in mortgage rates.

On the economic data front, the Census Bureau reported this morning that New Home Sales were softer-than-expected in February as the combination of unseasonably cold weather in the Southeast and Midwest and bottlenecks in the construction value chain moderated the pace of new home construction last month. New Home Sales were lower by 18.2% from the prior month but were still higher by 8.2% from last year. Inventory levels remain historically tight as the Months Supply of New Houses For Sale in the United States ended the month at 4.8, significantly below the 20-year average of 6.0 months.

Commercial Equity REITs

Today, we published Manufactured Housing; Great REITs Are Never Cheap. Riding the tailwinds of the affordable housing shortage across the United States, manufactured housing REITs outperformed the REIT index for a remarkable eighth-straight year in 2020. Pressured by the 'REIT Reopening Rotation,' however, MH REITs have uncharacteristically underperformed in early 2021 even as fundamentals remain stellar and all three REITs have already increased their dividends. MH REITs haven't appeared "cheap" based on traditional static FFO-based metrics at any point during this historic eight-year stretch of relentless outperformance, but valuations are as attractive as they've been in a half-decade relative to other REIT sectors.

Net Lease: Small-cap Postal Realty (PSTL) - which owns a portfolio of 726 properties leased to the USPS - reported fourth-quarter earnings results this afternoon. During the fourth quarter, the Company acquired 36 postal properties for $62.6 million, pushing its full-year acquisition total to approximately $130 million, comprised of 261 buildings. As of December 31, 2020, the Company’s portfolio is 100% occupied and the company announced that it collected 100% of rents in 2020.

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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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