Reopening Rotation • Dividend Boosts • House Hunters

Summary

• U.S. equity markets rebounded Tuesday on dovish commentary from Fed Chair Powell, who signaled that the Central Bank will remain accommodative despite the recent rise in growth and inflation expectations.
• Snapping a five-day losing streak, the S&P 500 finished higher by 0.1% today while the Dow Jones Industrial Average was higher by 15 points.
• Real estate equities were broadly again higher today following another wave of strong earnings and dividend boosts as the broad-based Equity REIT ETFs finished higher by 0.6%.
• Three more equity REITs - SBAC, WRI, and KIM - boosted their dividend yesterday afternoon, bringing the total so far this year to 26. Storage REITs surged today after a trio of impressive results yesterday afternoon.
• Home Depot (HD) pulled back today after providing a conservative outlook for 2021 despite an impressive quarter that saw comparable sales surge 25% as households continue to spend heavily on their homes.

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 rebounded Tuesday on dovish commentary from Fed Chair Powell, who signaled that the Central Bank will remain accommodative despite the recent rise in growth and inflation expectations. Snapping a five-day losing streak, the S&P 500 ETF (SPY) finished higher by 0.1% today while the Dow Jones Industrial Average (DIA) was higher by 15 points. Real estate equities were broadly again higher today following another wave of strong earnings and dividend boosts as the broad-based Equity REIT ETFs (VNQ) finished higher by 0.6% with 12-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) declined by 0.7%.

The recently high-flying technology sector was under pressure again today amid an ongoing "reopening trade" that has seen investors rotate out of the COVID-winners into some of the more value-oriented sectors including REITs and financials. Eight of the eleven GICS equity sectors finished in positive territory today, led to the upside by the Energy (XLE), Utilities (XLU), and Communications (XLC) sectors. Within the Hoya Capital Housing Index, a strong day from residential REITs and homebuilders was offset by a pullback from the home improvement retailers and property technology firms. 

On that note, Home Depot (HD) pulled back roughly 3% today despite an impressive quarter that saw comparable sales surge 25% as households continue to spend heavily on their homes. HD commented that "the housing environment remains strong as increased demand for single-family homes has driven housing turnover and home price appreciation," which was confirmed again today by the Case Shiller Home Price Index, which showed a continued acceleration in home values. However, while commentary suggested that the firm expects the strength to continue in 2021, the home improvement retailer held back on issuing formal full-year guidance due to the pandemic-related uncertainty. We'll hear results from Lowe's (LOW) tomorrow morning. 

Real Estate Earnings Update

We're now on the home stretch of another newsworthy REIT earnings season. Three more equity REITs - cell tower REIT SBA Communications (SBAC) and shopping center REITs Kimco (KIM) and Weingarten (WRI) - boosted their dividend yesterday afternoon. This afternoon, casino REIT Gaming and Leisure Properties (GLPI) added their name to the list as well, bringing the total this year to 27.

Self-Storage: Storage REITs surged today after a trio of impressive results yesterday afternoon that indicated the sector has indeed "turned the corner" in 2020, helped by the red-hot housing market. ExtraSpace Storage (EXR) surged nearly 5% after reporting yesterday afternoon that it recorded impressive full-year FFO growth of 8.2% in 2020 and sees a continued reacceleration into 2021 with expected FFO growth of 12.7%. National Storage (NSA) jumped by nearly 5% as well after reporting full-year FFO growth of 11.0% and guiding to growth of another 7% in 2021. Life Storage (LSI) finished higher by roughly 2% after reporting full-year FFO growth of 5.9% in 2020 and forecasting 6.5% growth in 2021. On average, the three self-storage REITs see same-store NOI growth of roughly 4.5% in 2021 which would be the strongest year since 2016.

Net Lease: Realty Income (O) finished higher by 0.5% today after reporting results yesterday afternoon. The largest net lease REIT collected 94% of rents in Q4, roughly in-line with the sector average, but continued to acquire properties at a frenetic pace. The firm acquired $2.2B in properties in full-year 2020 and expects to acquire $3.25B in 2021, powering a rebound in AFFO/share growth to 8.3% following the -3.6% decline in 2020. This afternoon, we'll hear results from net lease REITs Getty Realty (GTY) and Essential Properties (EPRT)

Cell Towers: The broader pressure on technology-related companies today pressured SBA Communications (SBAC), which finished lower by 4.2% despite reporting a very strong quarter and boosting its dividend by 25%. SBAC reported a "triple beat" with revenues, EBITDA, and AFFO/share all coming in ahead of estimates in Q4. For the year, SBAC recorded full-year AFFO growth of 11.2% and sees growth of another 8.2% in 2021. SBAC commented that it believes it "will continue to produce material growth in AFFO per share and, including the dividend, total shareholder return.”

Apartments: Centerspace (CSR) - formerly Investors Real Estate Trust (IRET) - finished higher by 0.8% after reporting results yesterday afternoon. CSR's Midwest-focused portfolio performed well throughout the pandemic as same-store NOI growth rose 1.8% for full-year 2020, among the best in the REIT sector. Forward Guidance was fairly downbeat, however, as the firm sees NOI growth declining by 2% in 2021 resulting from a jump in same-store expenses. American Campus (ACC) finished lower by 2.2% after reporting mixed results yesterday afternoon as the student housing REIT saw an 11.3% decline in same-store NOI in full-year 2020 and an 18% decline in FFO. ACC didn't provide guidance, as the firms' results will depend heavily on whether or not institutions have in-person classes in Fall 2021. 

Shopping Centers: Weingarten (WRI) finished higher by roughly 1% today after reporting yesterday afternoon that it collected 94% of rents in the fourth quarter and that it seems positive FFO/share growth in 2020 following the 21% dip in 2020. As noted above, WRI and Kimco (KIM) each raised their dividends as well, but both payouts remain below pre-pandemic levels. This afternoon, we'll hear results from Retail Opportunity (ROIC). 

Hotels: Hotel REITs Apple Hospitality (APLE) and Summit (INN), Pebblebook (PEB), and Hersha Hospitality (HT) report results this afternoon. Last week, Host Hotels (HST) surged more than 12% after reporting that it expects its hotel portfolio to return to profitability in the aggregate sometime during H2 2021 based on hotel level EBITDA. Sunstone Hotels (SHO) echoed these comments, noting that it "expects sequential quarter-over-quarter growth as the year progresses, and a return to hotel profitability by the second half of 2021." According to TSA Checkpoint data, after bottoming at 4% of 2019-levels in April, airline travel has trended higher in recent months to roughly 50% of pre-pandemic levels.

Yesterday we published Data Center REITs: Cloud Keeps Growing. Data Center REITs were the best-performing REIT sector in 2020, riding the "work-from-home" tailwinds that powered a surge in cloud spending, but the post-vaccine sector rotation has pressured these high-flyers. Recent earnings reports were solid but not spectacular. Leasing activity - the most closely-watched earnings metric - surged to record highs in Q4, but "same-store" pricing remains flat amid stiff competition. Consistent with the other "essential" property sectors - housing, technology, and logistics - FFO growth was firmly positive in 2020, averaging roughly 4%. With muted pricing power amid stiff competition from the hyperscale giants – Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL) - these REITs will continue to rely heavily on development and M&A to fuel future growth.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.6% today but remain higher by 1.1% this week. Commercial mREITs finished lower by 1.0% today but remain higher by 0.5% on the week. Invesco Mortgage (IVR) finished lower by roughly 2% today after reporting yesterday afternoon that its Book Value Per Share (BVPS) rose 11.2% in Q4 from the prior quarter to $3.86. Invesco Mortgage - which was one of the hardest-hit mREITs by the pandemic - has still only recovered a fraction of its decline in book value as its BVPS remains lower by more than 70% from pre-pandemic levels.  

MFA Financial (MFA) finished lower by 2.2% after reporting this morning that its BVPS declined 1.5% in Q4 after the company issued new shares to pay off debt owed to private equity giant Apollo Global Management and insurer Athene, which injected capital into the struggling mREIT during the peak of the pandemic-related volatility last summer. Elsewhere, iStar (STAR) finished higher by 0.6% after reporting an in-line quarter this morning. We'll hear results later this week from another half-dozen mREITs including Orchid Island Capital (ORC), Starwood Property (STWD), Ladder Capital (LADR), and Broadmark Realty (BRMK).

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.14% today, on average, but underperformed their respective common stock issues by an average of -0.19%. So far in 2021, REIT Preferred stocks are higher by 2.81% on a price-return basis. Excluding the handful of retail and hotel REITs with suspended (cumulative) preferred dividends, the average REIT preferred trades at a 3% discount to Par Value and has an average current yield of 6.46%.

Economic Data This week

We have another jam-packed slate of economic and housing data this week. On Tuesday, we saw the Case Shiller Home Price Index for December which is showed a continued reacceleration in home price appreciation. On Wednesday, we'll see New Home Sales data for January, which are expected to continue their strong post-pandemic rebound. On Thursday, we'll see Pending Home Sales as well as the first revision to fourth-quarter GDP. Then on Friday, we'll see Personal Spending & Income data and PCE inflation data for January in addition to a flurry of PMI and Consumer Sentiment data.

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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.

I am/we are long all holdings listed at www.HoyaCapital.com