Tech Trouble | REITs Steady | Dividend Cut Or Increase?
REITs, ETF investing, Dividend Investing, Homebuilders
Seeking Alpha Analyst Since 2012
Real Estate • High Yield • Dividend Growth
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Summary
- U.S. equity markets ended extended their sell-off Tuesday with the major averages sliding into correction territory amid a sharp momentum reversal in large-cap technology stocks.
- After snapping its six-week winning streak with declines of 2.3% last week, the S&P 500 ETF finished lower by another 2.7% today. The Dow Jones Industrial Average slid 632 points.
- Real estate equities were again among the relative outperformers today amid the broader sell-off as the Equity REIT ETF (VNQ) finished lower by 1.3% today.
- The pace of dividend cuts has slowed to a trickle in the equity REIT sector. This afternoon shopping center REIT Retail Properties of America (RPAI) announced a resumption of their previously suspended dividend at roughly a third of the pre-pandemic rate.
- Fellow shopping center REIT Urstadt Biddle (UBA) announced earnings results, while also boosting their previously-reduced dividend. Despite the increase, the current payout is half the pre-pandemic rate.
Real Estate Daily Recap
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U.S. equity markets ended extended their sell-off Tuesday with the major averages sliding into correction territory amid a sharp momentum reversal in large-cap technology stocks. After snapping its six-week winning streak with declines of 2.3% last week, the S&P 500 ETF (SPY) finished lower by another 2.7% today while the tech-heavy Nasdaq 100 (QQQ) dipped another 4.8% following last week's declines off 3.1%. Real estate equities were again among the relative outperfomers today amid the broader sell-off as the Equity REIT ETFs (VNQ) finished lower by 1.3% today with 17 of 18 property sectors finishing in negative territory. The Mortgage REIT ETF (REM), meanwhile, higher by 0.1% after declining by 2.6% last week. 
As discussed in our Real Estate Weekly Outlook, the "unofficial end" of summer has come with one final "splash" in its final days as volatility returned to U.S. equity markets following several months of relative tranquility. The recent sell-off - which has been largely isolated to the equity markets - has had a different and perhaps "healthy" feel to it compared to the sharp declines seen in March and April as the losses came despite an encouraging slate of employment data last week that showed a continued rebound in labor markets. In what we described as a "Robinhood shakeout," the highest-flying technology names have been among the hardest-hit this week while the "shutdown sensitive" sectors have generally been among the leaders. Commercial real estate (XLRE) and the Hoya Capital Housing Index were among the best-performing equity sectors on the day.
The economic calendar slows down in the holiday-shortened week after a frenetic slate of employment and housing data over the last two weeks. Inflation data highlights the slate of data with Producer Price Index data on Thursday and Consumer Price Index data on Friday. Inflation metrics showed signs of life in the prior month after most inflation metrics hit multi-decade lows in May and June. As usual, we'll be watching the weekly Mortgage data on Wednesday and Jobless Claims data on Thursday for signs that the housing and employment recovery can continue into early Autumn.
Commercial Equity REITs
It's been a quiet few weeks of newsflow in the real estate sector as the pace of dividend cuts has slowed to a trickle in recent weeks. After the close today, shopping center REIT Retail Properties of America (RPAI) announced that it has resumed its previously-suspended dividend, albeit at a level - $0.05 per share - below the pre-pandemic rate off $0.17 per share. Fellow shopping center REIT Urstadt Biddle (UBA) announced earnings results, while also boosting their previously-reduced dividend. Despite the increase, the current payout is half the pre-pandemic rate. We've tracked 64 equity REITs out of our universe of 170 to announce a suspension or reduction in their dividend since the start of the pandemic while 21 REITs have raised payouts in 2020, primarily in the housing, industrial, and technology sectors.
Today, we published Net Lease REITs: Opportunities Amid Reopening Revival. Net Lease REITs were punished by the coronavirus-related economic shutdowns, but have rebounded over the last several months as critical shutdown-sensitive tenants reopen their doors and as rent collection improves. As a whole, rent collection has improved sequentially from a low of 65% in the initial April reporting towards 90% in July as regions continue to lift shutdown orders, but a dreaded "second wave" of the pandemic remains a looming threat. American Finance (AFIN) provided an update this morning that rent collection improved to 90% in July and August, up two percentage points from their prior update.
Last week, we published Single Family Rentals: The Burbs Are Back. Amid the coronavirus pandemic, residential REITs - particularly the traditionally countercyclical single-family rentals - have proven to be a source of relative shelter for investors as single-family rental REITs are one of six real estate property sectors in positive territory in 2020. Despite the pandemic-related headwinds, SFR REITs including Invitation Homes (INVH) and American Homes (AMH) reported near-perfect rent collection and strong rental growth. Fueled by the maturing millennial generation, the 2020s were already poised to be a decade of 'suburban revival,' and behavioral changes in the post-coronavirus world have provided an added spark.
Last week, we published Office REITs: Work-From-Home Reckoning. Despite reporting near-perfect rent collection throughout the pandemic, office REITs continue to be under pressure as the “Work From Home” paradigm threatens the long-term outlook. Survey data and commentary from corporations indicate that the WFH paradigm is here to stay long after the pandemic subsides. Technology has accelerated the pre-existing trends of increased workplace efficiency. As "WFH" days become the industry standard, the office sector's loss is the housing market's gain. Nuance is required, however, as suburban and Sunbelt office assets are likely to see robust demand over the next decade, mimicking similar trends as those seen after the 9/11 terrorist attacks amid a broader "suburban revival.
Mortgage REITs
As tracked in our Mortgage REIT Tracker available to iREIT on Alpha subscribers, residential mREITs finished lower by 0.3% today after finishing last week lower by 3.3%. Commercial mREITs finished lower by 1.0% today after recording declines of 2.5% last week. Earlier this 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 lower by 0.6% today, on average, but outperformed their respective common stock issues by an average of 0.2%. Among REITs that offer preferred shares, the performance of these securities has been an average of 19.0% 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.
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