• Alex Pettee, CFA

Terrorism Abroad • REIT M&A • Dividend Boosts

Summary

  • U.S. equity markets were under pressure Thursday, retreating from record highs on renewed geopolitical concerns following a series of deadly terrorist attacks on U.S. service members in Afghanistan.

  • Pulling back after two straight days of record highs, the S&P 500 retreated 0.6% today while the Mid-Cap 400 slipped 0.9% and the Small-Cap 600 declined 1.2%.

  • Real estate equities - particularly residential REITs - were among the leaders on the day as the Equity REIT Index finished flat with 10 of 19 property sectors in positive territory.

  • Proxy advisory firm Glass Lewis joined ISS in recommending that Monmouth shareholders reject the proposed acquisition by Equity Commonwealth and instead "pursue Starwood’s competing offer" of $19.20 net cash per share.

  • National Storage (NSA) boosted its dividend for the second time this year, declaring a $0.41/share quarterly dividend, a 7.9% increase from its prior dividend of $0.38. Nearly 100 REITs have raised their dividends this year.

Real Estate Daily Recap

U.S. equity markets were under pressure Thursday, retreating from record highs on renewed geopolitical concerns following a series of deadly terrorist attacks on U.S. service members in Afghanistan. Following two straight days of record highs, the S&P 500 retreated 0.6% today while the Mid-Cap 400 slipped 0.9% and the Small-Cap 600 declined 1.2%. Real estate equities - particularly residential REITs - were among the leaders on the day as the Equity REIT Index finished flat with 10 of 19 property sectors in positive territory while Mortgage REITs declined by 1.0%.

While investors' focus remains on updated commentary from the Fed following their ongoing Jackson Hole Symposium, the latest scenes of violence in Afghanistan amid a chaotic withdrawal could have implications for fiscal policy as key spending deadlines loom. Ten of the eleven GICS equity sectors finished in negative territory, dragged on the downside by the Energy (XLE) and Consumer Discretionary (XLY) sectors. Residential REITs led the Hoya Capital Housing Index today and saw strength from home goods retailer Williams-Sonoma (WSM), which jumped more than 9% after reporting stronger-than-expected sales and boosting its dividend, citing a "strong housing market driving ongoing investment in the home."

Equity REITs

Storage: National Storage (NSA) boosted its dividend for the second time this year, declaring a $0.41/share quarterly dividend, a 7.9% increase from its prior dividend of $0.38. Earlier this week, self-storage REIT ExtraSpace (EXR) mortgage REIT New Residential (NRZ), and small-cap Presidio Property Trust (SQFT) each boosted their dividends. As discussed last week in our State of the REIT Nation report, REIT company-level metrics have exhibited a substantial rebound over the last year as FFO and dividends per share have now fully recovered the sharp declines from early in the pandemic.

Data Center & Industrial: We saw some REIT M&A news today as well. QTS Realty (QTS) announced that its stockholders voted to approve the acquisition of QTS by affiliates of Blackstone (NYSE:BX). QTS common stockholders will receive $78.00 in cash for each share of QTS common stock they own. Elsewhere, proxy advisory firm Glass Lewis joined fellow proxy advisor Institutional Shareholder Services Inc. (“ISS”) in recommending that shareholders reject the proposed acquisition of Monmouth (MNR) by Equity Commonwealth (EQR) and instead "pursue Starwood’s competing offer" of $19.20 net cash per share, and suggested that the Board's decision to reject the offer was not in the best interest of its shareholders.

Timber: Yesterday we published Timber REITs: Upside As Shortages Ease. Scorching-hot lumber demand from the resurgent housing industry - combined with sawmill production bottlenecks - sent lumber prices soaring to extreme levels. Inflating construction materials prices - and the outright inability to source necessary goods - forced home builders to delay projects and put many smaller-scale renovation projects on hold. Despite reporting the fastest revenue growth of any REIT sector in early 2021, timber REITs have been the weakest-performing property sector as lumber prices slump. Valuations and fundamentals appear compelling amid historic levels of demographic-driven housing demand and record-low housing supply, but investors must be able to tolerate elevated volatility and value inflation-hedging attributes.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.7% today but remain higher by 1.8% on the week. Commercial mREITs slipped 1.3% today but remain higher by 0.8% this week. On another slow day of newsflow, Great Ajax (AJX) led to the upside while ACRES Realty (ACR) was the laggard. Commercial mREITs gained 0.5% today and are now higher by 2.0% this week. The average residential mREIT pays a dividend yield of 9.0% while the average commercial mREIT pays a dividend yield of 6.8%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.14%, on average, but outperformed their respective common stock issues by an average of 0.65%. So far in 2021, REIT Preferred stocks are higher by 9.54% on a price return basis. The average REIT preferred pays a current yield of 5.99% and trades at a slight premium to par value.

Economic Data This Week

The busy week of economic and housing data continues on Friday as we'll see inflation and consumer spending data with the PCE Price Index - the Fed's "preferred" gauge of inflation - expected to show that consumer prices rose at the fastest rate in decades in July as well as Personal Income & Spending data. 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 on Saturday morning.

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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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