Dividend Boost • Earnings Update • Housing Builds Momentum
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 mixed Wednesday as investors parsed a busy slate of economic data and corporate earnings reports while volatility levels normalized following last week's short-squeeze frenzy.
- Finishing higher for the third-straight day, the S&P 500 edged-higher by 0.1% today while the Dow Jones Industrial Average gained 36 points. The tech-heavy Nasdaq 100 finished slightly lower.
- Real estate equities were mixed with the COVID-sensitive sectors rebounding while the "essential" sectors generally underperformed. The broad-based Equity REIT ETFs declined 0.3% with 12-of-19 property sectors in positive territory.
- Data center REIT QTS Realty (QTS) boosted its dividend by 6.4%, becoming the tenth REIT to raise dividends in 2021. We expect a historic year for dividend increases following the wave of pandemic-related cuts.
- Redfin (RDFN) reported that homebuying demand is 60% above where it was last year. Supply levels remain historically tight as 55% percent of homes for sale found a buyer in 14 days or less — the highest on record - powering an 18% surge in home prices.
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 mixed Wednesday as investors parsed a busy slate of economic data and corporate earnings reports while volatility levels normalized following last week's short-squeeze frenzy. Finishing higher for the third-straight day, the S&P 500 ETF (SPY) edged-out a 0.1% gain today while the Dow Jones Industrial Average (DIA) gained 36 points. The tech-heavy Nasdaq 100 (QQQ) finished slightly lower. Real estate equities were mixed with the COVID-sensitive sectors rebounding while the "essential" sectors generally underperformed. The broad-based Equity REIT ETFs (VNQ) finished lower by 0.3% today with 12 of 19 property sectors in positive territory while Mortgage REITs (REM) pulled-back by 0.5%.
"Normalization" has been the theme over the past two days following last week's excitement as the Volatility Index (VIX) returned to "pre-squeeze" levels below 23. Better-than-expected employment data from ADP and strong PMI data pushed the 10-Year Treasury Yield back towards the highest levels since the start of the pandemic at 1.13% while investors continue to see relief in the encouraging recent trends on the spread of the pandemic. Six of the elven GICS equity sectors finished higher today, led to the upside by the Energy (XLE), Communications (XLC), and Financials (XLF) sectors.
Homebuilders and the broader Hoya Capital Housing Index were mostly higher today after Redfin (RDFN) reported that homebuying demand, which typically slows through the winter, is 60% above where it was last year. Supply levels remain historically tight as 55% percent of homes for sale found a buyer in 14 days or less—the highest on record - powering an 18% surge in home prices. Also this morning, the Mortgage Bankers Association reported that mortgage applications to purchase a single-family home - a forward-looking indicator of home sales - are now higher by 16% from last year while refinancing applications are now higher by 59% from last year.
Real Estate Earnings Update
Last week we published REIT Earnings Preview: Who Paid The Rent? Real estate earnings season hits high-gear this week while more than 175 equity REITs, 40 equity REITs, and dozens of housing industry companies reporting earnings over the next five weeks. While missed rents and dividend cuts were the prevailing themes in the REIT sector in mid-2020, the vaccine-driven sector rotation has been the dominant theme over the past quarter. Normalizing rent collection and positive dividend commentary could be a positive catalyst to continue the recovery. We expect a historic year for dividend increases following the wave of pandemic-related cuts.
Data Center: QTS Realty (QTS) declared a $0.50/share quarterly dividend, a 6.4% increase from its prior dividend of $0.47. All five data center REITs boosted their dividends last year and we'll see data center REIT earnings kick-off tomorrow with results from CoreSite (COR). Through the first month of 2021, ten equity REITs have increased their dividend, nine of which are currently paying dividends above pre-pandemic levels.
Apartments: Mid-America (MAA) and AvalonBay (AVB) report Q4 results this afternoon. While the vaccines may reverse recent dynamics by mid-2021, 3Q earnings results revealed a striking bifurcation between the coastal and sunbelt-focused REITs. Apartment REITs in the coastal "shutdown cities" have seen residents flee to lower-cost suburban markets and business-friendly Sunbelt metros. Outside of the troubled urban metros, however, national apartment markets have been remarkably resilient, and recent stimulus measures - including $25 billion in rental assistance - should help to fully "normalize" rent collection. We're watching for updates on rent collection, rental growth trends, and commentary on this "Urban Exodus".
Office: Brandywine Realty (BDN) finished higher by 1.8% today after reporting relatively solid results yesterday afternoon. BDN - which owns a portfolio with more limited exposure to the negative trends slamming the coastal "shutdown cities" - collected 98.3% of rent due in Q4, but still recorded a 3.5% decline in same-store NOI and a 2.8% decline in FFO per share as occupancy rates declined by 70 basis points from last year. Guidance was mixed, however, as BDN sees same-store NOI growth of 4% in 2021 but expects FFO per share to decline another 2.6% at the mid-point.
Mortgage REITs
As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished flat today and remain higher by 2.6% on the week. Commercial mREITs finished lower by 0.3% but remain higher by 2.9% on the week. Yesterday, we published our Mortgage REIT Earning Preview. Mortgage REIT earnings season kicked-off last week and we'll see results from PennyMac Mortgage (PMT) and Dynex Capital (DX) tomorrow. The 3 trends we're watching: 1) Updated dividend commentary, 2) Updated book values, and 3) Commentary on the mortgage and housing markets.
The iShares Mortgage REIT 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
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.21% today, on average, but underperformed their respective common stock issues by an average of 0.37%. The REIT Preferred ETF (PFFR) ended 2020 with total returns of -0.2% and REIT preferreds are higher by 1.84% so far in early 2021. Excluding the handful of retail and hotel REITs with suspended (cumulative) preferred dividends, the average REIT preferred trades at a 4% discount to Par Value and has an average current yield of 6.54%.
Economic Data This Week
Employment data highlights this week's busy 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 job growth of 50k in January, bouncing back from the 140K job losses in December while the unemployment rate is expected to remain steady at 6.7%. We'll also see Construction Spending data on Monday, the weekly MBA Mortgage Application data on Wednesday, and a flurry of Purchasing Managers' Index (PMI) data throughout the week.
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