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  • Alex Pettee, CFA

Reopening Rotation • Malls Short Squeezed • REIT Dividend Boost

Summary

  • U.S. equity markets were mixed Wednesday as the "reopening trade" continued in full-force today, underscored by the continuation of the retail-driven short squeeze frenzy in the so-called "meme stocks."

  • Following declines of 0.1% yesterday, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 declined 0.5% while the Small-Cap 600 finished off by 0.1%.

  • Real estate equities were again among the leaders today as the Equity REIT Index finished higher by 1.2% with 17 of 19 property sectors in positive territory.

  • "Meme mania" has fully swept up the troubled mall REIT sector - repeating the pattern from January - as retail traders again pile into many of the most heavily-shorted stocks. Pennsylvania REIT surged 16% today after Washington Prime jumped 100% yesterday.

  • Universal Health Realty (UHT) announced this afternoon that it will boost its dividend to $0.70 per share, up 0.7% from its prior rate of $0.69, becoming the 60th equity REIT to raise its dividend so far this year.

Real Estate Daily Recap

U.S. equity markets were mixed Wednesday as the "reopening trade" continued in full-force today, underscored by the continuation of the retail-driven short squeeze frenzy in the so-called "meme stocks." Following declines of 0.1% yesterday, the S&P 500 (SPY) finished higher by 0.2% today while the Mid-Cap 400 (MDY) declined 0.5% while the Small-Cap 600 (SLY) finished off by 0.1%. Real estate equities were again among the leaders today as the Equity REIT Index finished higher by 1.2% with 17 of 19 property sectors in positive territory while the Mortgage REIT Index declined 0.2%.


Inflation expectations have remained grounded in recent weeks following a surge last month as the 10-Year Treasury Yield finished lower by 2 basis points to close at 1.59%. Six of the eleven GICS equity sectors finished higher on the day, led to the upside for the second-straight day by the Energy (XLE) and Real Estate (XLRE) sectors while the Materials (XLB) and Consumer Discretionary (XLY) sectors lagged. Another strong day from Residential REITs lifted the Hoya Capital Housing Index to another day of gains despite pressure on homebuilders and building products suppliers as rents appear poised to "catch up" with the surge in home values over the past year.

Commercial Equity REITs

Malls: "Meme mania" has fully swept up the troubled mall REIT sector - repeating the pattern from January - as retail traders again pile into many of the most heavily-shorted stocks. Troubled mall REIT Pennsylvania REIT (PEI) - which emerged from bankruptcy earlier this year - surged more than 16% today. Washington Prime (WPG) - which was granted its seventh forbearance extension last week and is the target of a newly-launched class action lawsuit - pulled back 6% today but remains higher by more than 100% this week. Tanger Outlets (SKT) jumped 6% today while Macerich (MAC) rose more than 9%. 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 later this week)

Single Family Rental: Non-traded REIT sponsor Fundrise announced yesterday that it closed on a $300 million credit facility which will be used to finance nearly a half a billion dollars of newly constructed single family rental units in high-growth markets across the Sunbelt. One of several real estate "crowdfunding firms," we discussed last year the risks of non-traded REITs and analyzed the dubious marketing claims made by several crowdfunding firms and concluded that investors would be far better off sticking with publicly-traded REITs including American Homes (AMH) and Invitation Homes (INVH), which are the two largest SFR owners in the country.


Apartments: As we discussed yesterday in Happy Landlords, Unhappy Renters, 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: Universal Health Realty (UHT) announced this afternoon that it will boost its dividend to $0.70 per share, up 0.7% from its prior rate of $0.69, becoming the 60th equity REIT to raise its dividend so far this year. UHT was also 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.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished flat today but remain higher by 1.1% on the week. Commercial mREITs gained 0.3% today and are now higher by 1.7% on the week. On another relatively slow day of newsflow in the mREIT sector, NexPoint Real Estate Finance (NREF) and Western Asset Mortgage (WMC) led the gains today while Ready Capital (NYSE:RC) and Hannon Armstrong (HASI) were laggards.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.42% today, on average, but underperformed their respective common stock issues by an average of 0.75%. So far in 2021, REIT Preferred stocks are higher by 8.87% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.05% and trades at a slight premium to par value. Over in the bond markets, healthcare REIT CareTrust (CTRE) announced a private offering of $400M in senior unsecured notes due 2028 and plans to use a portion of the offering's proceeds to redeem its 5.25% senior notes due 2025.

Economic Data This Week

The busy slate of employment data kicks off tomorrow with 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.

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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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