• Alex Pettee, CFA

Retail Slump • Mall Earnings • REIT Dividend Boost

Summary

  • U.S. equity markets were broadly lower Tuesday as downbeat retail sales data and ongoing COVID concerns amplified investor worries about a slowdown in global economic growth.

  • Posting its worst decline since mid-July and snapping a 5-day winning streak, the S&P 500 finished lower by 0.7% today. The Mid-Cap 400 declined by 1.2% while Small-Cap dipped 1.5%.

  • Real estate equities were among the outperformers today as the Equity REIT Index was lower by 0.1% with 5-of-19 property sectors in positive territory while Mortgage REITs declined 0.5%.

  • Retail Sales were weaker-than-expected in July, declining 1.1% from the prior month but remained higher by 15.8% from last July, consistent with Consumer Sentiment data last week showing a sharp drop in confidence.

  • Net lease REIT EPR Properties (EPR) resumed its previously suspended dividend. 78 equity REITs have now raised their dividend thus far in 2021 while an additional 20 mortgage REITs have boosted their payouts.

Real Estate Daily Recap

U.S. equity markets were broadly lower Tuesday as downbeat retail sales data and ongoing COVID concerns amplified investor worries about a slowdown in global economic growth. Posting its worst decline since mid-July and snapping a 5-day winning streak, the S&P 500 finished lower by 0.7% today while the Mid-Cap 400 declined by 1.2% and the Small-Cap 600 dipped 1.5%. Real estate equities were among the outperformers today as the Equity REIT Index was lower by 0.1% with 14 of 19 property sectors in negative territory while Mortgage REITs declined by 0.5%.

Eight of the eleven GICS equity sectors were lower on the day, dragged to the downside by the economically-sensitive sectors including Industrials (XLI), Materials (XLB), and Consumer Discretionary (XLY). Homebuilders pulled-back today following NAHB data showing a pull-back in homebuilder sentiment in early August, citing high materials costs as well as continuing supply shortages ahead of Housing Starts and Building Permits data tomorrow morning.

The Commerce Department reported this morning that Retail Sales were weaker-than-expected in July, declining 1.1% from the prior month but remained higher by 15.8% from last July. Consistent with Consumer Sentiment data last week showing a sharp drop in confidence in late July and early August, consumers cut back on purchases across most major categories, particularly in clothing stores and on motor vehicles. Spending at home improvement stores also pulled-back from robust levels earlier this year, consistent with earnings this morning from Home Depot (HD) which showed that comparable-store sales rose 4.5% year-over-year - slowing from the 31.0% surge in Q1.

Equity REITs

Mall: CBL Properties (OTCPK:CBLAQ) rallied 3% after the troubled mall owner reported signs of stabilization in Q2. CBL reported that its rent collection improved to 90% during the quarter, driving a strong same-store NOI increase of 18.5% in Q2 while its occupancy increased to 87.0%, representing a 160-basis point improvement from the sequential quarter. CBL plans to exit bankruptcy on November 1 upon completion its reorganization plan which was approved last week by the United States Bankruptcy Court. The plan calls for restructuring the company's balance sheet to provide for the elimination of more than $1.6B of debt. Tomorrow afternoon, we'll publish our updated Mall REIT sector report which will evaluate Q2 earnings and the outlook for the rest of 2021.

Net Lease: EPR Properties (EPR) dipped 2.6% despite resuming its previously suspended dividend, declaring a $0.25/share monthly dividend, lower than its $0.29/share monthly rate last paid in April 2020. Earlier this month, EPR - which was among the hardest-hit REITs by the pandemic - introduced FFO guidance which called for a nearly 50% jump from last year but still nearly 50% below its pre-pandemic FFO. With EPR's raise, 78 equity REITs have now raised their dividend thus far in 2021 while an additional 20 mortgage REITs have boosted their payouts.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.3% today and are now off by 0.9% this week. Commercial mREITs slipped 0.5% to push their declines to 1.0% on the week. On otherwise slow day of news flow, Ellington Financial (EFC) was among the leaders after holding its dividend steady at $0.15/share - representing a forward yield of roughly 9.75% - and reporting that its estimated Book Value Per Share was $18.29 as of July 31 including the impact of the dividend, roughly flat from last month.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.1% today, on average, and outperformed their respective common stock issues by an average of 0.59%. So far in 2021, REIT Preferred stocks are higher by 8.84% on a price return basis. The average REIT preferred pays a current yield of 6.02% and trades at a slight premium to par value. Three preferred issues completed their previously-announced redemption today: Rexford's (REXR) 5.875% Series A Preferred (REXR.PA), VEREIT's (VER) 6.70% Series F Preferred (VER.PF), and DigitalBridge's (DBRG) 7.500% Series G Preferred (DBRG.PG).

Economic Data This Week

The jam-packed week of economic and housing data continues on Wednesday when we'll see Housing Starts and Building Permits data, which is expected to show a mild reacceleration in home construction activity in July as supply chain constraints begin to slowly ease and construction materials prices cool from extreme highs. We'll also be watching MBA Mortgage Market data on Wednesday and Jobless Claims data on Thursday.

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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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