Twitter Trouble • Dividend Boosts • Inflation Week (NYSEARCA:HOMZ)

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Summary

U.S. equity markets retreated Monday, dragged on the downside by mega-cap technology companies amid reignited regulatory concerns following the de-platforming of President Trump and other conservative media outlets.
After gaining 2.0% last week, the S&P 500 finished lower by 0.7% while the Dow Jones Industrial Average declined 89 points and the Nasdaq 100 dipped 1.5%.
Following a disappointing start to 2021 last week, real estate equities were again laggards today as the Equity REIT ETF declined by 1.3% with 18 of 19 property sectors in negative-territory.
Twitter and Facebook plunged as the social media companies stepped into the center of the intensifying debate over monopoly power, censorship, free speech, and corporate influence in politics.
Two REITs - STAG and BRMK- boosted their dividends this afternoon. Inflation data highlights this week's economic calendar. Inflation expectations surged last week after Democrats won the "trifecta" of political control.

Real Estate Daily Recap

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U.S. equity markets retreated Monday, dragged on the downside by mega-cap technology companies amid reignited regulatory concerns following the de-platforming of President Trump and other conservative-leaning media outlets. After gaining 2.0% last week, the S&P 500 ETF (SPY) finished lower by 0.7% while the Dow Jones Industrial Average (DIA) declined 89 points and the Nasdaq 100 (QQQ) dipped 1.5%. Following a disappointing start to 2021 last week, real estate equities were again laggards today as the broad-based Equity REIT ETF (VNQ) declined by 1.3% with 18 of 19 property sectors in negative territory while Mortgage REITs (REM) retreated by 0.9%.

Seven of the eleven GICS equity sectors finished lower on the day, led to the downside by the Consumer Discretionary (XLY) and Communications (XLC) sectors while the Energy (XLE) added to last week's rally on the upside. Homebuilders and the broader Hoya Capital Housing Index were also leaders on the upside. Twitter (TWTR) plunged more than 6% while Facebook (FB) and Amazon (AMZN) were also under pressure social media companies and tech platforms stepped into the center of the intensifying debate over monopoly power, censorship, free speech, and corporate influence in politics. Bitcoin (BTC-USD), an emerging proxy for inflation expectations, dipped more than 10% on the day after climbing to record-highs last week.

After a jam-packed week of employment data, it will be another busy week of economic data in the week ahead headlined by the two major inflation reports. On Wednesday, we'll see Consumer Price Index data for December, and on Friday, we'll see Producer Price Index data. Inflation expectations surged last week after Democrats won the "trifecta" of political control given the implications for additional stimulus, and investors will be looking for signs of inflation in the hard data in the months ahead. We'll also see Retail Sales data for December on Friday. As usual, we'll also be watching the weekly Mortgage Applications and Jobless Claims as well.

Commercial Real Estate

Industrial: STAG Industrial (STAG) became the second equity REIT to boost its dividend in 2021 following the increase from Life Storage (LSI) last week. STAG declared a $0.12083/share monthly dividend, a 0.7% increase from its prior dividend of $0.1200. In all, 52 equity REITs paid higher total dividends in 2020 than last year, led by residential REITs with 10 increases, net lease REITs with nine, and industrial REITs with eight. On the other side, 67 equity REITs paid lower dividends in 2020 than in the prior year.

Malls: Tanger Outlets (SKT) finished lower by 5.2% despite reporting that it collected 90% of Q4 rents and over 40% of the deferred rents due in 2021 had been collected. SKT noted that it has recorded positive cash flow across 2H20. As of Dec. 31, 2020, consolidated portfolio occupancy was 91.9% while traffic during Q4 represented roughly 90% of prior-year levels. Mall REITs have been the worst-performing REIT sector for the past two years.

Net Lease: We've heard a flurry of updates from much of the net lease sector over the last two weeks. As discussed in Rents Paid, Dividends Raised, while we had initially expected acquisition activity to slow considerably in 2020, the vaccine-driven rebound has "reopened the spigot" for the well-capitalized REITs at an impressive pace. STORE Capital (STOR) declined by 1.3% after announcing this morning that it invested more than $800M in Q4, exceeding its guidance range of $625M-$750M. W.P. Carey (WPC) finished lower by 0.5% after announcing this morning that its total transaction activity in 2020 was $826M, powered by a strong second half of activity.

Last Friday, we published Cheap REITs Stay Cheap. Earlier last year, we published a report titled "Cheap REITs Stay Cheap" that analyzed the "factors" that exhibited persistent outperformance in the REIT sector over the past several decades. Key takeaways from this report included the observation that higher-yielding, higher-leveraged, and "inexpensive" REITs tended to produce inferior total returns over most measurement periods. These "factors" were on full display at extreme levels in 2020 amid the coronavirus pandemic. We revisit and analyze the performance trends within the REIT sector in 2020 and the outlook ahead for 2021.

Mortgage REITs

As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 1.0% after ending last week lower by 1.1%. Commercial mREITs finished lower by 0.9% following gains of 1.7% last week. After the close today, Broadmark Realty (BRMK), an mREIT focused on the homebuilding space, declared a $0.07/share monthly dividend, a 16.7% increase from its prior dividend of $0.06. Prior to the pandemic, Broadmark was paying a monthly dividend of $0.08 per share.

The iShares Mortgage Real Estate Capped ETF (REM) ended 2020 with total returns of -20.8%, but the market-cap weighted index hides some of the permanent scars of 2020 on a handful of mREITs. Using a simple average, among the 23 residential mREITs, the average price return in 2020 was -33.3%. Among the 18 commercial mREITs, the average price return in 2020 was -18.5%. Of the 41 mREITs in the NAREIT universe, just two paid higher dividends in 2020 compared to 2019, seven paid the same rate, while 32 paid lower dividends.

REIT Preferreds & Bonds

As tracked in our REIT Preferred Stock & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.64% today, on average, but outperformed their respective common stock issues by an average of 0.46%. The REIT Preferred ETF (PFFR) ended 2020 with total returns of -0.2% and REIT preferreds are roughly flat through the first four days of 2021. The average REIT preferred trades at a 5% discount to Par Value and has an average current yield of 6.81%.

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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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