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  • Alex Pettee, CFA

Tech Wreck • What's UPREIT? • More Special Dividends

Summary

  • U.S. equity markets declined Friday on another volatile session, pushing the major averages lower by between 1-3% on the week as technology stocks slumped while interest rates retreated sharply.

  • Ending a choppy week with cumulative declines of 1.2%, the S&P 500 declined 0.9% today while the Mid-Cap 400 slipped 1.4% and Small-Caps fell 1.3%. The tech-heavy Nasdaq 100 dipped nearly 2%.

  • Real estate equities were relative outperformers today and on the week. The Equity REIT Index was lower by 0.3% today with 6-of-19 property sectors in positive territory. Mortgage REITs slipped 0.9%.

  • Federal Realty (FRT) announced that it will reorganize into an umbrella partnership real estate investment trust, or UPREIT. In short, the UPREIT structure allows the REIT to offer stock in exchange for properties, offering sellers tax deferral benefits.

  • Becoming the third REIT to declare a special dividend this week, Franklin Street Properties (FSP) declared a $0.32/share special dividend. Earlier this week, SL Green (SLG) and PS Business Parks (PSB) declared special distributions.

Income Builder Daily Recap

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U.S. equity markets declined Friday on another volatile session, pushing the major averages lower by between 1-3% on the week as the previously high-flying technology stocks slumped while interest rates retreated sharply. Ending a choppy week with cumulative declines of 1.2%, the S&P 500 declined 0.9% today while the Mid-Cap 400 slipped 1.4% and the Small-Cap 600 fell 1.3%. The tech-heavy Nasdaq 100 dipped nearly 2%. Real estate equities were relative outperformers today and on the week as the Equity REIT Index was lower by 0.3% today with 6-of-19 property sectors in positive territory while Mortgage REITs slipped 0.9%.

The closely-watched nonfarm payrolls report this morning painted a mixed picture about the state of the labor market with a disappointing print on the headline number, but signs of strength under the hood including an encouraging uptick in the labor force participation rate. Despite the solid jobs report and an apparent compromise to avoid a government shutdown, the 10-Year Treasury Yield retreated to the lowest level since mid-September while the US Dollar rallied amid Omicron fears and expectations that the U.S. will avoid the worst of the economic restrictions seen in Europe and Asia.

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.

Equity REIT Daily Recap

Cannabis: Today we published Cannabis REITs: When They Go Low, We Get High. 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: Franklin Street Properties (FSP) declared a $0.32/share special dividend, the result of taxable gains realized on the company's previously disclosed dispositions of approximately $600 million of assets in the aggregate during 2021. FSP did not adjust its regular quarterly dividend, which has remained at $0.09/share since 2018. Earlier in the week, SL Green (SLG) and PS Business Parks (PSB) also declared special dividends for similar reasons to meet minimum REIT distribution requirements.

Shopping Center: Federal Realty (FRT) announced yesterday that it will reorganize into an umbrella partnership real estate investment trust, or UPREIT, which is the corporate structure that most REITs operate under. In short, the UPREIT structure allows the REIT to offer stock in exchange for properties (rather than cash), which allows the property owner to sell the property without recognizing a taxable gain - and can sell the REIT stock over time. Earlier this week, we published Shopping Center REITs: Bargain Hunting that discussed how external growth has returned to the sector.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs slipped 0.9% today while commercial mREITs declined 1.1%. On an otherwise slow day of newsflow, Chimera Investment (CIM) declared a $0.33/share quarterly dividend, in line with its previous rate. The average residential mREIT now pays a dividend yield of 9.62% while the average commercial mREIT pays a dividend yield of 6.50%.

REIT Preferreds & Capital Raising

Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were lower by 0.49% today but remain higher by 7.77% 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.


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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.

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Hoya Capital Research & Index Innovations is an affiliated index provider and research firm that builds custom indexes tracking U.S. commercial and residential real estate sectors, including indexes tracked by exchange-traded funds (ETFs). 

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