Lower Forever • Dividend Season • Housing Stays Hot
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 finished mixed Wednesday as relief that Congress is reportedly nearing a long-awaited fiscal stimulus deal was offset by lukewarm economic data and mixed signals from the Fed.
- Finishing within a point of fresh record-highs, the S&P 500 finished higher by 0.18% today but the Dow Jones Industrial Average retreated by 45 points. Small-Caps and Mid-Caps lagged today.
- Real estate equities were mixed today as the broad-based Equity REIT ETF (VNQ) finished higher by 0.1% with 10 of 18 property sectors in positive territory.
- A busy slate of housing data this week has so far indicated that the red-hot housing industry has exhibited few signs of cooling into the winter months. Homebuilder Sentiment in December was the second-highest on record.
- The Federal Reserve committee expects rates will remain near zero through 2023, conditions that should continue to provide a favorable backdrop for yield-sensitive segments like real estate.
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 mixed Wednesday as relief that Congress is reportedly nearing a long-awaited fiscal stimulus deal was partially offset by lukewarm economic data and mixed signals from the Fed. Finishing within a point of fresh record-highs, the S&P 500 ETF (SPY) finished higher by 0.2% today but the Dow Jones Industrial Average (DIA) retreated by 45 points. The tech-heavy Nasdaq 100 (QQQ) eclipsed record-highs, gaining 0.6%. Real estate equities were mixed today as the broad-based Equity REIT ETF (VNQ) finished higher by 0.1% with 10 of 18 property sectors in positive territory. The Mortgage REIT ETF (REM), meanwhile, finished off by 0.2% on the day.
The Federal Reserve committee expects rates will remain near zero through 2023, conditions that should continue to provide a favorable backdrop for yield-sensitive segments like real estate. 6 of the 11 GICS equity sectors finished in negative territory on the day, weighed to the downside by the Utilities (XLU), Industrial (XLI), and Energy (XLE) sectors. Homebuilders and the broader Hoya Capital Housing Index finished modestly higher ahead of earnings results this afternoon from Lennar (LEN) and as a busy slate of housing data this week has so far indicated that the red-hot housing industry has exhibited few signs of cooling into the winter months.
One of the few areas of consistent strength throughout the pandemic has been the U.S. housing industry - perhaps the most critical sector of the U.S. economy - which has seemingly served as the "backbone" of the early economic recovery. The Mortgage Bankers Association reported this morning that mortgage applications to purchase a single-family home - a forward-looking indicator of future home sales - are now higher by 26% from last year while refinancing applications are now higher by 105% from last year. The 30-Year Fixed Mortgage Rate stands at 2.85%, a fresh all-time series low.
Also this morning, the NAHB reported that its Homebuilder Sentiment Index - a leading indicator of housing activity - was the second-highest on record at 86, second-only to last month's record high of 90. Just as the housing industry was a primary beneficiary of the initial round of fiscal stimulus, we believe that a fresh round of relief will provide added support to shore up some of the less robust sub-segments of the housing market, particularly the Class B and C urban apartment markets which have seen an uptick in unpaid rents in recent months amid the "third wave" of economic shutdowns in several coastal cities.
As it relates to a V-shaped recovery, perhaps a "close second" to the housing industry in the velocity and magnitude of its rebound has been the retail industry. While overall retail sales rose at a slower-than-expected rate in November, several segments including the home improvement category continue to be a source of strength. With growth of 18.7% from last year, the Building Materials category is second only to e-commerce as the top-performing retail category. Overall retail sales, however, declined 1.1% in November due in part to the more modest, Covid-impacted Black Friday spending this year, but sales overall remain higher by 4.1% from last year.
Commercial Equity REITs
"Dividend Declaration Season" hasn't disappointed thus far, and after a handful of dividend increases and one dividend cut earlier this week, we heard declarations from a handful of REITs over the last 24 hours. Shopping center REIT Kite Realty (KRG) doubled its dividend to $0.15 this afternoon, but this remains below the $0.32 pre-pandemic rate. Meanwhile, we heard a half-dozen REITs maintain dividends at current levels including mall REIT Simon Property (SPG), office REITs Boston Properties (BXP), City Office REIT (PGRE), and JBG Smith (JBGS), healthcare REIT Global Medical (GMRE), and shopping center REIT Urstadt Biddle (UBA).
Yesterday, we published Cannabis REITs: High on Growth. Cannabis REITs - Innovative Industrial (IIPR) and Power REIT (PW) - have been far-and-away the best-performing property sector for the second year in a row. Marijuana has continued along the seemingly unceasing path towards legalization. After the 2020 election, medical usage is now legal in 35 states while recreational usage is legal in 15 states, but it's unclear whether the positive demand-effects of potential federal legalization would outweigh the negative supply-effects for cannabis REITs. For growth-oriented investors seeking exposure to cannabis, cannabis REITs offer an attractive and differentiated option to play the space through real estate ownership.
Mortgage REITs
As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.6% today but remain higher by 1.0% on the week. Commercial mREITs finished flat on the day but remain higher by 0.7% this week. After the close today, New Residential (NRZ) declared a $0.20 per share dividend, an increase of 33% from its dividend last quarter, but still below its pre-pandemic rate of $0.50.
Blackstone Mortgage Trust (BXMT) declared a $0.62/share quarterly dividend yesterday afternoon, in line with its previous rate. BXMT is one of nine mREITs that have maintained or raised its dividend this year relative to last year's levels. Meanwhile, 32 mortgage REITs are currently paying dividends below their pre-pandemic rates.
REIT Preferreds & Bonds
As tracked in our REIT Preferred Stock & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.23%, on average, and outperformed their respective common stock issues by an average of 0.14%. VEREIT (VER) announced this afternoon that it intends to redeem 21% of its 6.70% Series F Cumulative Redeemable Preferred Stock (VER.PF) on January 15, 2021. Among REITs that offer preferred shares, the performance of these securities has been an average of 15.38% 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 6.81%.
Economic Data This Week
Following a slow week of economic data, the jam-packed slate of data rolls on over the next two days. Tomorrow, we'll see Housing Starts and Building Permits for November which are each expected to continue their strong post-pandemic rebound. We'll see a flurry of PMI data throughout the week, and we'll also be watching the weekly Jobless Claims data tomorrow as well.
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