Merger Monday | Dividend Season | Preview Of Week Ahead
REITs, ETF investing, Dividend Investing, Homebuilders
Seeking Alpha Analyst Since 2012
Real Estate • High Yield • Dividend Growth
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- U.S. equity markets finished mostly lower Monday as investor optimism about forthcoming coronavirus vaccines was tempered by the ongoing "third wave" of coronavirus-induced economic shutdowns.
- Following gains of 1.7% last week, the S&P 500 finished lower by 0.2% while the Dow Jones Industrial Average retreated 149-points. The tech-heavy Nasdaq 100, however, gained 0.6%.
- Real estate equities were under pressure today following a strong week of outperformance as the broad-based Equity REIT ETF declined by 0.8% today with 14 of 18 property sectors in negative-territory.
- Healthcare REIT Alexandria Real Estate (ARE) boosted its dividend for the second time this year, joining the six REITs that boosted dividends last week. 45 equity REITs have now raised dividends in 2020 compared to 66 that have reduced or suspended payouts.
- Mortgage REIT Merger; Anworth Mortgage (ANH) jumped more than 8% after Ready Capital (RC) announced it would merge with the mREIT in a cash and stock deal worth $2.94 per share, a 25% premium to ANH's close last Friday.
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 finished mostly lower Monday as optimism about forthcoming coronavirus vaccines - which could be administered in the U.S. beginning as early as this week - was tempered by the ongoing "third wave" of coronavirus-induced economic shutdowns. Following gains of 1.7% last week, the S&P 500 ETF (SPY) finished lower by 0.2% while the Dow Jones Industrial Average (DIA) retreated 149-points. The tech-heavy Nasdaq 100 (QQQ), however, gained 0.6%. Real estate equities were under pressure today following a strong week of outperformance as the broad-based Equity REIT ETF (VNQ) declined by 0.8% today with 14 of the 18 property sectors in negative territory. The Mortgage REIT ETF (REM) declined 1.4% on the day.
As discussed in our Real Estate Weekly Outlook, encouraging vaccine news and stimulus hopes have powered the recent leg of the equity market rebound as the S&P 500 has now rebounded an astounding 65% from its lows in late-March. 8 of the 11 GICS sectors were lower on the day, however, with the Energy (XLE) and Real Estate (XLRE) sectors dragging on the downside. Homebuilders led the Hoya Capital Housing Index to gains on the day. Brokerage and data firm Redfin (RDFN) published a research report last Friday that showed continued strength across the U.S. housing industry. Of note, 42% of house listings accepted an offer within the first two weeks on the market, a supply shortage that powered a 16% surge in values from last year.
After a busy week of employment data, it will be a slower week of economic data in the week ahead headlined by the two major inflation reports. On Thursday, we'll see Consumer Price Index data for November, and on Friday, we'll see Producer Price Index data. Inflation metrics perked up during the summer after hitting multi-decade lows during the shutdown months, but the upward pressure appeared to have stalled in recent months as the pandemic-related supply-chain issues get resolved. We'll again be watching the weekly Mortgage Applications data on Wednesday and Jobless Claims data on Thursday along with JOLTs data on Wednesday.
Commercial Equity REITs
As discussed in 'Tis The Season For REIT Dividends, following a quiet few weeks of REIT-related newsflow, "dividend declaration season" has broken the silence over the last week. We saw an additional six equity REITs boost their dividend last week and this morning, healthcare REIT Alexandria Real Estate (ARE) boosted its dividend for the second time this year. ARE joined cell tower REIT American Tower (AMT) and net lease REIT Agree Realty (ADC), which each raised their dividend by the second time this year last week. Thus far, 45 equity REITs have now raised dividends in 2020 compared to 66 that have reduced or suspended payouts.
We're expecting a busy week of REIT dividend news, as this particular dividend declaration season should be especially interesting as REITs that had previously suspended or reduced dividends amid the pandemic seek to meet their distribution requirements to qualify as a REIT. The IRS did relax the required cash component of the distribution rules, and the fact that the payout rules are based on net income rather than cash flows may effectively "exempt" many of these REITs from distribution requirements.
Malls: Elsewhere in the REIT space, Simon Property Group (SPG) dipped 4.8% today after Fitch Ratings cuts the mall REIT's credit ratings to A- from A. Fitch cited SPG's upcoming acquisition of fellow high-productivity mall REIT Taubman Centers (TCO) and overall stress on its tenant roster as the reasons behind the downgrade. As analyzed in Mall REITs: Too Little, Too Late, mall REITs entered 2020 on unstable footing following a tsunami of store closings over the past decade, and the vaccine won't come soon enough to save troubled mall REITs Pennsylvania REIT (PEI) and CBL & Associates (CBL), which both entered for bankruptcy last month.
As tracked in our Mortgage REIT Tracker available to REIT Forum subscribers, residential mREITs finished lower by 1.4% today following gains last week of 1.9%. Commercial mREITs finished lower by 1.1% today following last week's gains of 3.7%. Anworth Mortgage (ANH) jumped more than 8% after Ready Capital (RC) announced it would merge with the Agency-focused residential mREIT in a cash and stock deal worth $2.94 per share, a 25% premium to its close last Friday. The combined company will operate under the name Ready Capital and is expected to have a pro forma equity capital base in excess of $1 billion upon the expected closing in Q1 2021. Ready Capital, however, dipped more than 10% following the announcement.
Dividend declaration season is ramping up this week in the mREIT sector as well, and similar themes apply with many mREITs expected to declare special distributions in order to meet minimum distribution requirements. On cue, Tremont Mortgage (TRMT), which had slashed its quarterly dividend from $0.22 per share to $0.01 per share in April, declared a $0.53 one-time cash distribution per common share "order to pay out sufficient taxable income to maintain TRMT’s tax status as a real estate investment trust."
REIT Preferreds & Bonds
As tracked in our REIT Preferred Stock & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.16% today, on average, and outperformed their respective common stock issues by an average of 1.65%. Among REITs that offer preferred shares, the performance of these securities has been an average of 16.89% higher in 2020 than their respective common shares. The average REIT preferred trades at a 5% discount to Par Value and has an average current yield of 6.64%.
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