Rents Paid • Capital Raised • Homebuilders Gain
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 were mostly higher Tuesday despite continued pressure on the mega-cap technology companies while investors look ahead to corporate earnings season and inflation reports later this week.
- Following declines of 0.7% on Monday, the S&P 500 finished fractionally higher while the Dow Jones Industrial Average rose 60 points. The Mid-Cap and Small-Cap indexes jumped more than 1% each.
- Real estate equities were mixed on the day amid a slow start to 2021 as the broad-based Equity REIT ETF finished higher by 0.2% with 9-of-19 property sectors in positive-territory.
- Net Lease REIT Realty Income (O) finished lower after commencing a public offering of 10.5M shares of its common stock. Net lease REITs continue to build "ammunition" for another acquisition spree.
- Shopping Center REIT SITE Centers (SITC) finished higher by 3.1% after it reported this morning that it collected 93% rents in Q4, up from 86% in Q3 and 75% in Q2.
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 The REIT Forum and occasionally on our website and this 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 were mostly higher Tuesday despite continued pressure on the mega-cap technology companies amid an escalating censorship controversy while investors look ahead to the start of corporate earnings season and inflation reports later this week. Following declines of 0.7% on Monday, the S&P 500 ETF (SPY) finished fractionally higher while the Dow Jones Industrial Average (DIA) rose 60 points. The tech-heavy Nasdaq 100 (QQQ) pulled back 0.2%. Real estate equities were mixed on the day amid a slow start to 2021 as the broad-based Equity REIT ETF (VNQ) finished higher by 0.2% with 9 of 19 property sectors in positive territory while the Mortgage REIT ETF (REM) gained 0.8%.
Six of the eleven GICS equity sectors finished higher on the day, led to the upside by the Energy (XLE) and Consumer Discretionary (XLY) sectors. The Communications (XLC) sector was a laggard again as social media giants Twiter (TWTR) and Facebook (FB) continue to feel the heat from their controversial decision to de-platform the President this weekend. Bitcoin (BTC-USD) was under pressure again today, dipping another 3% after climbing to record-highs last week above 40,000 as investors await CPI and PPI inflation data later this week for signs of emerging price pressures.
Homebuilders and the broader Hoya Capital Housing Index were also among the leaders ahead of this afternoon's earnings report from KB Home (KBH). The homebuilder is sharply higher in after-hours trading after reporting a very strong quarter with net orders surging 42% to 3,937, the company’s highest fourth-quarter level since 2005. KBH's backlog ended higher by 63% from last year as the company commented that it "expects to achieve significant growth in its scale and profits in 2021." In our Homebuilder report last month, we discussed how a confluence of near-term positive factors and long-term tailwinds converged over the last eight months that have generated a highly favorable environment for the U.S. housing industry.
Commercial Real Estate
Today, we published Cell Tower REITs: Tech Trouble. Cell Tower REITs outperformed the REIT Index for the sixth-straight-year in 2020, but have dipped nearly 20% over the last quarter amid the sharp vaccine-driven REIT sector rotation. Apple's successful iPhone 12 launch represents the true "arrival" of 5G, the much-anticipated next-generation mobile network will reach its full potential as post-pandemic mobility rates normalize. The pull-back appears to be a long-awaited buying opportunity. Despite sector-leading growth rates, cell tower REITs - along with many other "essential" REITs in the housing, technology, and logistics sectors - trade near historically low valuations relative to the REIT average.
Net Lease: Realty Income (O) finished lower by 2.7% after commencing a public offering of 10.5M shares of its common stock priced at $57.05/share, a modest premium to its consensus Net Asset Value. The offering's net proceeds of roughly $580M will be used to fund property acquisitions, for general corporate purposes and working capital. The equity raise brings balance sheet metrics back in-line after the debt raise last month in which Realty Income issued $725 million in debt averaging a term of 9.1 years at just 1.45%. 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.
Shopping Center: SITE Centers (SITC) finished higher by 3.1% after it reported this morning that it collected 93% rents in Q4, up from 86% in Q3 and 75% in Q2. 98% of its tenants are open and operational. Shopping Center REITs have been one of the best-performing property sector since the release of positive coronavirus vaccine trial results in early November. After plunging more than 50% early in the pandemic, shopping center REITs have reported stabilizing fundamentals over the last two quarters with rent collection improving to nearly 90% in Q3 and may reach as high as 93%-95% in Q4.
Industrial: STAG Industrial (STAG) finished modestly lower despite increasing its dividend yesterday afternoon, the second REIT to do so in 2021. 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.
Mortgage REITs
As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.4% today but remain lower by 0.8% this week. Commercial mREITs finished higher by 0.8% and are now flat on the week. Broadmark Realty (BRMK) was the leader today, gaining nearly 5% after the homebuilding-focused mortgage REIT declared a $0.07/share monthly dividend yesterday afternoon, a 16.7% increase from its prior dividend of $0.06. This afternoon, AGNC Investment (AGNC) declared a $0.12/share monthly dividend, in line with its previous rate.
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 0.38% today, on average, and underperformed their respective common stock issues by an average of 1.59%. 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%.
Economic Data This 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.
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