Alex Pettee, CFA
Special REIT Dividends • Rebound Rally • Farewell Prison REITs
U.S. equity markets rebounded Thursday following a two-day skid on another volatile session as investors evaluate the economic impact of the Omicron variant and the looming debt ceiling deadline.
Bouncing back from its worst two-day skid since October 2020, the S&P 500 rallied 1.4% today while the Mid-Cap 400 surged 2.9% and the Small-Cap 600 gained 2.8%.
Real estate equities posted strong gains as well as the Equity REIT Index rallied 3.0% today with 18-of-19 property sectors in positive territory. Mortgage REITs gained 3.0% and Homebuilders soared 5%.
Two REITs declared special dividends - SL Green and PS Business Parks - and three REITs hiked their regular dividends over the past 24 hours - Eastgroup Properties, Universal Health REIT, and SL Green.
Good riddance and farewell to the prison REIT sector. GEO Group (GEO) dipped more than 6% today after announcing that it is no longer a REIT, deciding instead to become a taxable C-corporation, effective in this current year.
Income Builder Daily Recap
We recently launched Hoya Capital Income Builder - a premier income-focused investment research service through Seeking Alpha Marketplace - that will be the new exclusive home of all of Hoya Capital's investment research. Income Builder focuses on real income-producing asset classes that offer the opportunity for diversification, monthly income, capital appreciation, and inflation hedging. If you're not already on board, give us a try with a completely risk-free two-week trial and take a look around.
U.S. equity markets rebounded Thursday following a two-day skid on another volatile session as investors evaluate the economic impact of the Omicron variant and look for signs of progress in the debt ceiling showdown. Bouncing back from its worst two-day skid since October 2020, the S&P 500 rallied 1.4% today while the Mid-Cap 400 surged 2.9% and the Small-Cap 600 gained 2.8%. Real estate equities posted strong gains as well today as the Equity REIT Index rallied 3.0% today with 18-of-19 property sectors in positive territory while Mortgage REITs gained 3.0%.
Volatility across equity and debt markets remains at-or-near the highest level since last April, but Treasury markets calmed down today following wild wings over the prior four trading sessions with the 10-Year Treasury Yield trading in a tight range around its lowest levels since late September. Ahead of the closely-watched nonfarm payrolls report tomorrow, all 11 GICS equity sectors were higher on the day led to the upside by the Financials (XLF) and Industrials (XLI) while homebuilders and the broader Hoya Capital Housing Index were a bright spot once again as recent housing data continues to trend positively and on expectations of downward pressure on mortgage rates.
Equity REIT Daily Recap
Cannabis: Today we published an exclusive report on Income Builder that analyzed the latest developments and our updated outlook for the cannabis REIT sector. Riding a seemingly never-ending 'high' since emerging onto the scene in the mid-2010s, Cannabis REITs are far-and-away the best-performing REIT sector of the past half-decade as the budding industry thrives in the murky and often contradictory regulatory framework of legalized marijuana. Joining Innovative Industrial (IIPR), Power REIT (PW), and AFC Gamma (AFCG), a pair of newcomers will soon enter the pot party - Chicago Atlantic Real Estate (REFI) and Freehold Properties (FHP) - both operating as commercial mortgage REITs - similar to AFCG which went public in early 2021.
Office: SL Green (SLG) rallied more than 6% today after announcing a flurry of corporate actions this morning. First, SLG boosted its regular common dividend to $0.3108/monthly, a 2.5% increase from its prior dividend of $0.3033. Second, SLG announced a special dividend of $2.4392 per share, resulting from extraordinary gains on asset dispositions in 2021, payable on January 18, 2022, which will be comprised entirely of SLG’s common stock. Third, SLG announced a reverse stock split to mitigate the dilutive impact of the SLG common stock issued in the special dividend in a ratio determined after the close on January 10. Despite its NYC-heavy focus, SLG has reported improving performing this year as trends appear less dire than some feared.
Industrial: PS Business Parks (PSB) also declared a special dividend of $4.60 per share of common stock, which was necessary to meet REIT distribution requirements. The distribution will be paid in addition to the previously announced quarterly dividend of $1.05 per share of common stock - which is steady with the quarter rate it's paid since the start of 2019 - also payable on December 30, 2021. Fellow industrial REIT EastGroup Properties (EGP) announced a 22.2% increase in its quarterly dividend - its second dividend hike this year - raising its quarterly rate to $1.10 per share from $0.90 per share. Elsewhere, Universal Health REIT (UHT) rallied more than 5% after hiking its dividend for the third time this year.
Prisons: Good riddance and farewell to the prison REIT sector. GEO Group (GEO) dipped more than 6% today after announcing that it is no longer a REIT, deciding instead to become a taxable C-corporation, effective in this current year. Fellow prison operator CoreCivic (CXW) announced a similar move last year. The decision stems from the Board’s evaluation of GEO’s corporate tax structure and REIT status, which was announced on April 7, 2021. The Board also voted unanimously to discontinue GEO’s quarterly dividend. We'll publish an exclusive "final report" on the prison REIT sector this weekend for Income Builder subscribers.
Shopping Center: Earlier this week, we published Shopping Center REITs: Bargain Hunting. Bouncing back from punishing pandemic-related declines, Shopping Center REITs are on the cusp of a full recovery across all critical metrics - but Omicron introduces fresh uncertainty - and also potential opportunity. The retail landscape has improved dramatically this year. Retail sales are on-pace to rise over 15% this year while store closings are on-pace for the lowest level in a decade. Bargains in the shopping center REIT sector were becoming hard to find before the Omicron-driven sell-off. We continue to favor the "essential" grocery-anchored REITs, but see emerging bargains in power center REITs.
Mortgage REIT Daily Recap
Per the REIT Rankings Tracker available to Income Builder subscribers, commercial mREITs rallied 2.8% today while residential mREITs gained 2.7%. Mortgage REITs focused on more COVID-sensitive sectors led the rally today including iStar (STAR), MFA Financial (MFA), and Ladder Capital (LADR) which each gained at least 5%. The average residential mREIT now pays a dividend yield of 9.53% while the average commercial mREIT pays a dividend yield of 6.43%.
REIT Preferreds & Capital Raising
Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were higher by 0.08% today and are now higher by 8.40% on a price return basis and roughly 15% on a total return basis. Earlier this week, Public Storage (PSA) announced the redemption of its 4.90% Cumulative Preferred Shares, Series E (PSA.PE) on December 30, 2021.
Economic Data This Week
We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report published this weekend.
We're excited to announce the launch of our new investment research service here on Seeking Alpha - Hoya Capital Income Builder. We've put together a great team of contributors from across the REIT, dividend, and ETF industry, so whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and a comprehensive suite of tools and models to help build sustainable portfolio income targeting premium dividend yields of up to 10%. And of course, subscribers receive complete access to our investment research - including reports that are never published elsewhere - from Hoya Capital and our team of contributors.
Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.
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.