Dividend Boost | Vaccine Approval | Fresh Records

Summary

• U.S. equity markets advanced Wednesday as signs of progress on stimulus talks and the first regulatory approval of a coronavirus vaccine in the U.K. lifted the major averages to fresh record-highs.
• Pushing its gains to roughly 1% this week, the S&P 500 gained 0.2% today while the Dow Jones Industrial Average gained another 60 points. Energy stocks led the gains.
• After leading the gains yesterday, real estate equities were laggards today as the broad-based Equity REIT ETF declined by 0.8% today with 9 of the 18 property sectors in negative territory.
• Following a quiet few weeks of REIT-related newsflow, we are entering "dividend declaration season" which should be especially interesting this quarter following the wave of dividend cuts earlier this year.
• Net lease REIT Agree Realty (ADC) boosted its dividend for the second time this year. ADC is one of 41 equity REITs that have increased their dividend this year compared to 66 that have cut or suspended.

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 in its entirety on The REIT Forum and post this condensed version on our website and Seeking Alpha blog to cover significant news and events. Subscribe to our free email list to keep up with the latest developments in the commercial and residential real estate sectors. Follow our real-time commentary on Twitter and LinkedIn.

U.S. equity markets advanced Wednesday as signs of progress on the stalled stimulus talks and the first regulatory approval of a coronavirus vaccine in the U.K. lifted the major averages to fresh record-highs. Pushing its gains to roughly 1% this week, the S&P 500 ETF (SPY) gained 0.2% today while the Dow Jones Industrial Average (DIA) gained another 60 points and the Nasdaq 100 (QQQ) advanced 0.1%. After leading the gains yesterday, real estate equities were laggards today as the broad-based Equity REIT ETF (VNQ) declined by 0.8% today with 9 of the 18 property sectors in negative territory while the Mortgage REIT ETF (REM) gained 1.3%. 

The wave of positive vaccine news continued this morning as the UK became the first western nation to approve a coronavirus vaccine after authorizing Pfizer's (PFE) vaccine for emergency use and plans to initiate vaccinations within days. The positive news was offset by modestly disappointing employment data from the ADP missed estimates as hiring slowed to the slowest rate since July. The BLS nonfarm payrolls report on Friday is expected to show hiring of roughly 500k in November with the unemployment rate declining to 6.7%. 6 of the 11 GICS equity sectors finished in positive territory led by the Energy (XLE), Financials (XLF), and Communications (XLC) sectors. 

Homebuilders and the broader Hoya Capital Housing Index finished lower today despite solid housing data this morning. The Mortgage Bankers Association reported that mortgage applications to purchase a single-family home - a forward indicator of future home sales - are now higher by 28% from last year while refinancing applications are now higher by 102% from last year, strength that has been powered by a confluence of near-term factors and long-term tailwinds that have converged over the last six months to generate a highly favorable environment for the housing industry. This follows Pending Home Sales data on Monday which showed that sales in October were roughly flat from last month, but remained higher by 20.2% from last year.

Commercial Equity REITs

Following a quiet few weeks of REIT-related newsflow, we are entering "dividend declaration season" which should be especially interesting this quarter as REITs that had previously suspended or reduced dividends amid the pandemic seek to meet their distribution requirements to qualify as a REIT. On that note, Weingarten Realty (WRI), which had cut its quarterly dividend from $0.40 to $0.18 per share, declared a $0.36/share special dividend, effectively "making up" for two quarters' worth of reduced dividends. We suspect that we'll see similar "special dividends" over the next few weeks from a number of the 66 REITs that have cut their dividends this year. 

Rents Paid, Dividends Raised? It's far easier to pay dividends when you're collecting the rents, and while several REIT sectors have struggled to do so, other "essential" sectors have had little difficultly collecting payments from tenants. Yesterday afternoon, net lease REIT Agree Realty (ADC) declared a $0.62/share quarterly dividend, a 3.3% increase from its prior dividend of $0.60, which was the second increase this year for ADC. ADC also announced that it collected rent payments from 99% of its portfolio in November, the third straight month the company has received 99% of rents. ADC is one of 41 equity REITs that have increased their dividend this year.

Yesterday, we published Single-Family Rentals: Suburban Renaissance. Riding the tailwinds of the red-hot U.S. housing market, single-family rental REITs have been one of the top-performing real estate sectors throughout the pandemic. 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. The mounting housing shortage - and concerns over housing affordability - will position SFRs to be the default "starter home" for millions of millennials. We view the build-to-rent market as a key and growing source of relatively steady homebuilding demand that is less impacted by near-term economic conditions or mortgage rates and expect the synergistic relationship between SFR institutional operators and homebuilders to continue to strengthen.

Mortgage REITs

As tracked in our Mortgage REIT Tracker available to REIT Forum subscribers, residential mREITs finished higher by 1.4% today but remain lower by 1.4% this week. Commercial mREITs finished higher by 1.6% today and are now higher by 1.1% this week. Chimera Investment (CIM) declared a $0.30/share quarterly dividend, in line with previous, representing a forward yield of 11.65%. As discussed in our recent mREIT Earnings Recap, residential mREITs reported an average 7% gain in Book Values in the third-quarter following the 9% gain in Q2. Commercial mREITs reported an average 2% rise in Book Values in Q3 following the fractional gain in Q2.

REIT Preferreds & Bonds

As tracked in our REIT Preferred Stock & Bond Tracker available to REIT Forum subscribers, REIT Preferred stocks finished higher by 0.53% today, on average, but underperformed their respective common stock issues by an average of 0.30%. Among REITs that offer preferred shares, the performance of these securities has been an average of 17.92% higher in 2020 than their respective common shares. The average REIT preferred trades at a 6% discount to Par Value and has an average coupon of 6.80%.

This Week's Economic Calendar

Employment data highlights this week's economic calendar, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for employment gains of roughly 500k in October following last month's gain of 638k and for the unemployment rate to tick down to 6.7%. We'll also see Construction Spending data on Tuesday, the weekly MBA Mortgage Application data on Wednesday, and a flurry of PMI data throughout the week.

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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.

I am/we are long all holdings listed at www.HoyaCapital.com