Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Stimulus Stall | Dividend Cut | Tech Under Scrutiny

Daily Recap

  • U.S. equity markets pulled-back Tuesday, reversing course after an apparent break-down in fiscal stimulus negotiations while large-cap tech-stocks lagged amid antitrust scrutiny from both sides of the political aisle.

  • After rallying 1.8% yesterday, the S&P 500 finished lower by 1.4% today while the tech-heavy Nasdaq 100 dipped 1.8% and the Dow Jones Industrial Average declined 276 points.

  • Following gains of 0.6% yesterday, the broad-based Equity REIT ETF (VNQ) finished lower by 0.7% today with 15 of 18 property sectors in negative territory.

  • As previously announced, Prison REIT GEO Group (GEO) "officially" reduced their dividend from $0.48 to $0.34 per share. 65 equity REIT out of our universe 170 equity REITs have reduced or suspended their dividend in 2020.

  • While more stimulus will certainly be appreciated by equity markets and by the Federal Reserve, strong economic data over the last several months has reduced the sense of immediate urgency to expand the already-unprecedented levels of fiscal stimulus.

Real Estate Daily Recap

U.S. equity markets pulled-back Tuesday, reversing course after an apparent break-down in fiscal stimulus negotiations while large-cap tech-stocks lagged amid antitrust scrutiny from both sides of the political aisle. After rallying 1.8% yesterday on the President's recovery and return to the White House, the S&P 500 ETF (SPY) finished lower by 1.4% today while the tech-heavy Nasdaq 100 (QQQ) dipped 1.8% and the Dow Jones Industrial Average (DIA) declined 276 points. Following gains of 0.6% yesterday, the broad-based Equity REIT ETF (VNQ) finished lower by 0.7% today with 15 of 18 property sectors in negative territory. Mortgage REITs (REM) declined 0.9% after gaining 0.6% yesterday. 

10 of the 11 GICS equity sectors finished lower on the day, led to the downside by the Communications (XLC), Consumer Discretionary (XLY), and Technology (XLY) sectors. Hope was mounting in recent days that a deal on a renewed fiscal stimulus package could be reached amid reports of ongoing talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin, but a tweet from President Trump poured cold water on the stimulus optimism, suggesting that talks shouldn't be restarted until after the election. While more stimulus will certainly be appreciated by equity markets and by the Federal Reserve, strong economic data over the last month- which pushed the Citi Economic Surprise Index back towards record-high levels - has reduced the sense of immediate urgency to expand the already-unprecedented level of fiscal stimulus measures in the eyes of some lawmakers. 

Commercial Equity REITs

Today, we published Manufactured Housing REITs: Not Enough Homes, So Onto Boats. Manufactured housing REITs ("MH REITs") have proven to be relatively immune from coronavirus-related headwinds that have slammed much of the real estate sector, collecting nearly 100% of rents while also boosting dividends this year. Amid this housing shortage, MH REITs have begun investing in a new - but fundamentally similar - asset class: boat marinas. After a sharp slowdown in late-Spring, recreational vehicle and boat sales have smashed records this summer while the U.S. housing market has roared back to life. MH REITs aren't cheap, but long-term fundamentals remain stellar for this "essential" property sector.

We also heard a handful of dividend declarations and business updates over the last 24 hours. As previously announced during their Q2 earnings report, Prison REIT GEO Group (GEO) declared a $0.34/share quarterly dividend, a decrease from their prior dividend rate of $0.48 per share. 65 equity REIT out of our universe 170 equity REITs have reduced or suspended their dividend in 2020. 29 equity REITs, including manufactured housing REITs Equity Lifestyle (ELS) and Sun Communities (SUI) have raised dividends in 2020 to levels above their pre-pandemic rates, primarily in the "essential" property sectors - technology, housing, and industrials.

Meanwhile, shopping center REIT Whitestone REIT (WSR) gained 0.3% today after it announced that all 53 of its properties are open and operating while 90% of total third-quarter rents have been collected, up from 81% collection in the second quarter. Welltower (WELL) declined 1.4% today after it announced that CEO and Chairman Thomas J. DeRosa will step down. Shankh Mitra has been appointed Chief Executive Officer and will join the Board of Directors. Finally, Iron Mountain (IRM) announced the formation of a €300M joint-venture to design and develop a large hyperscale data center in Frankfurt, Germany. We discussed trends in the data center sector last month in Data Center REITs: Sunlight Through COVID Clouds. Data centers are currently less than 10% of IRM's revenues.

Mortgage REITs

As tracked in our Mortgage REIT Tracker, residential mREITs finished lower by 0.8% today and are now lower by 0.4% this week. Commercial mREITs declined by 1.3% today and are now off by 1.0% this week. Mortgage REIT earnings season is slated to begin in two weeks with investors anxious to hear updated dividend plans and book value estimates. Out of the 41 mREITs in our coverage, 31 reduced or suspended dividends, 8 have maintained, and 2 have raised. Last month, we published our Mortgage REIT Earnings Recap where we discussed some of the broader trends in the mREIT industry.

REIT Preferreds & Bonds

As tracked in our all-new REIT Preferred Stock & Bond Tracker available to iREIT on Alpha subscribers, REIT Preferred stocks finished higher by 0.07% today, on average, and outperformed their respective common stock issues by an average of 0.62%. We discussed UMH Properties' (UMH) suite of Preferreds (UMH.PB, UMH.PC, UMH.PD) in today's report on Manufactured Housing REITs. Among REITs that offer preferred shares, the performance of these securities has been an average of 20.29% higher in 2020 than their respective common shares. Preferred stocks generally offer more downside protection, but in exchange, these securities offer relatively limited upside potential outside of the limited number of “participating” preferred offerings that can be converted into common shares.

This Week's Economic Calendar

The economic calendar slows down in the week ahead after a frenetic slate of employment and housing data over the last two weeks. This morning, we saw a flurry of PMI data which showed a continued rebound in services activity in September. On Tuesday, we'll see JOLTs Job Openings data, a detailed (but backward-looking) breakdown of employment trends in August. As usual, we'll also be watching the weekly MBA Weekly Mortgage Applications 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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