Dividend Boost | Urban Exodus | Lumber On Fire

Summary

• U.S. equity markets were mixed Friday as the major averages ended lower for the second-straight week amid continued pressure on the previously-high-flying technology stocks.
• Ending the week lower by 2.5%, S&P 500 finished higher by 0.1% today. The tech-heavy Nasdaq 100, however, dipped 0.7% today and ended the week off by nearly 5%.
• Real estate equities modestly outperformed on the week. Ending the week with declines of 2.2%, Equity REITs finished lower by 0.6% today with 14 of 18 sectors in negative territory.
• Casino and gaming REIT VICI Properties (VICI) became the 26th equity REIT to raise its dividend in 2020 above prior-year levels. On the other hand, we've tracked 64 equity REITs in our universe of 170 REITs to reduce or suspend their dividend since the start of the pandemic.
• Apartment REIT AvalonBay Communities (AVB), which owns a heavily-urban portfolio, reported downward pressure on rents and occupancy in urban markets. Rents declined 4.8% for July and August while occupancy dipped 130 basis points.

Real Estate Daily Recap

Our Real Estate Daily Recap discusses the notable news and events in the real estate sector over the last trading day and highlights sector-by-sector performance. We publish this note every afternoon on iREIT on Alpha and occasionally here on Seeking Alpha to cover significant news and events. Subscribe to our free email list to make sure you never miss the latest developments in the commercial and residential real estate sectors. You can also follow our real-time commentary on Twitter and LinkedIn.

U.S. equity markets were mixed Friday as the major averages ended lower for the second-straight week amid continued pressure on the previously-high-flying technology stocks and as hopes dim on an extension of fiscal stimulus measures. Ending the week lower by 2.5%, S&P 500 ETF (SPY) finished higher by 0.1% today while the Dow Jones Industrial Average (DJI) rose 131 points. The tech-heavy Nasdaq 100 (QQQ), however, dipped 0.7% today and ended the week off by nearly 5%. Real estate equities modestly outperformed on the week. Ending the week with declines of 2.2%, Equity REIT ETFs (VNQ) finished lower by 0.6% today with 14 of 18 property sectors in negative territory. The Mortgage REIT ETF (REM), meanwhile, finished lower by 0.7% to end the week with 1.0% declines. 

Following a similar pattern as last week, the economically-sensitive sectors were generally among the better-performers this week amid the technology-led sell-off. 8 of the 11 GICS equity sectors finished in positive territory today, led by the Industrials (XLI), Materials (XLB), and Financials (XLF) sectors. While investors have been discouraged by the failure of Congress to reach a compromise on an extension of the coronavirus relief measures, encouraging pandemic trends in the U.S. have likely offset some of the concern among investors as the unfortunate claim of "center of the pandemic" returns to Europe. Homebuilders and the Hoya Capital Housing Index finished higher today following another generally strong week of housing data, which we'll cover in full detail in our upcoming Real Estate Weekly Outlook report.

Commercial Equity REITs

It was a fairly busy 24 hours of REIT news amid an otherwise slow week. Casino and gaming REIT Vici Properties (VICI) became the 26th equity REIT to raise its dividend in 2020 above prior-year levels. On the other hand, we've tracked 64 equity REITs in our universe of 170 REITs to reduce or suspend their dividend since the start of the pandemic. The majority of dividend increases in the REIT sector this year have come from the "essential" property sectors - housing, industrial, and technology REITs. 

Apartment REIT AvalonBay Communities (AVB), which owns a heavily-urban portfolio, announced that it collected 95% of its average rents in September compared with the same period last year and upped its collection rates in July and August to 96% of average collection rates. Effective rent change was -4.8% for July and August combined vs. -3.1% for Q2 2020 while occupancy declined 130 basis points from the end of June. We discussed trends in the multifamily market in Apartment REITs: Urban Exodus. Earlier in the week, the National Multifamily Housing Council (NMHC) noted that its Rent Tracker showed that rent collection in September is running 4.8-percentage point below prior-year levels, an uptick from the 1-3 percentage point drag in April through August. While the timing of the Labor Day holiday may have impacted rent collection in recent data, we may be seeing some effects from the termination of several coronavirus stimulus measures in July.

Lumber futures (LB1:COM) surged to all-time highs today after a short-lived sell-off last week with front-month contracts jumping to $939 per 1,000 board ft., the highest on record. Resurgent demand from single-family homebuilders caught many lumber producers - including lumber REITs like Weyerhaeuser (WY) and PotlatchDeltic (PCH) by surprise - as production was slowed or halted during the peak of the pandemic in April and May, leading to severe supply shortages while production lines are restarted. Raging wildfires on the West Coast - though primarily impacting publicly-owned forests - has also added to upward pressure on lumber prices.

Yesterday, we published High-Yield ETFs And CEFs: No Free Lunch. "Give me yield or give me death." In a world of perpetually low interest rates, investors have piled into yield-oriented equity sectors to quench their voracious appetite for income. High-yield real estate ETFs and CEFs have been popular options, which typically offer juicy dividend yields of 5-10% compared to their broad-based real estate ETF counterparts yielding below 4%. On Wall Street, however, there’s no free lunch and many of these high-yield funds REITs been slammed by the coronavirus pandemic, bearing the brunt of the wave of dividend cuts that has bedeviled the sector. While roughly a third of the equity REIT sector cut or reduced dividends in 2020, many of these high-yield ETFs and CEF saw 60-85% of their constituents cut dividends this year. Below, we outline the primary differences between these three fund structures.

Earlier this week, we published Net Lease REITs: 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. While several "experience-heavy" REITs continue to have their backs against the walls, the sector as a whole remains on a relatively firm footing as four net lease REITs have actually increased their dividend in 2020.

Mortgage REITs

As tracked in our Mortgage REIT Tracker available to iREIT on Alpha subscribers, residential mREITs finished lower by 0.9% today and ended the week off by 1.7%. Commercial mREITs finished lower by 0.3% today and finished the week lower by 2.1%. Small-cap Commerical mREIT Sachem Capital (SACH) led the gains to the upside today while Blackstone Mortgage (BXMT) was the biggest laggard. 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 0.4% today, on average, and outperformed their respective common stock issues by an average of 1.1%. UMH Properties (UMH) announced today that it will redeem all 3.8M issued and outstanding shares of its 8.0% series B cumulative redeemable preferred stock on October 20, 2020. Among REITs that offer preferred shares, the performance of these securities has been an average of 20.9% 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

We'll have a full analysis of this week's economic data in our Real Estate Weekly Outlook report.

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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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