Dovish Fed • REIT Earnings • Dividend Increases

Summary

• U.S. equity markets rallied Wednesday following another slate of strong housing data and after Fed Chair Powell reiterated his dovish commentary and intent to maintain a highly accommodative monetary policy.
• Climbing back into positive territory for the week, the S&P 500 finished higher by 1.1% today while the Dow Jones Industrial Average surged 425 points to close at record highs.
• Real estate equities were broadly again higher today following another wave of strong earnings and dividend boosts as the broad-based Equity REIT ETFs gained 0.8% with 15-of-19 property sectors higher.
• The wave of better-than-expected reports and dividend boosts continued over the last 24 hours as three more equity REITs - Gaming & Leisure Properties (GLPI), Retail Opportunity (ROIC), and Vereit (VER) - each boosted their dividends, bringing the total this year to 29.
• New Home Sales were stronger-than-expected in January as the housing industry continues to lead the early economic recovery. New Home Sales were higher by 4.3% from last month and 19.3% from last year.

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 rallied Wednesday following another slate of strong housing data and after Fed Chair Powell reiterated his dovish commentary and intent to maintain a highly accommodative monetary policy. Climbing back into positive territory for the week, the S&P 500 ETF (SPY) finished higher by 1.1% today while the Dow Jones Industrial Average (DIA) surged 425 points to close at fresh record highs. 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) gained 0.8% with 15-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) jumped more than 3%.

Nine of the eleven GICS equity sectors finished in positive territory today, led to the upside by the Energy (XLE), Financials (XLF), and Industrials (XLI) sectors while Small-Caps (SLY) and Mid-Caps (MDY) also delivered strong outperformance relative to the large-cap benchmarks. Meanwhile, homebuilders and the broader Hoya Capital Housing Index were higher today following another strong slate of housing data and earnings reports. 

On that point, the U.S. Census Bureau reported this morning that New Home Sales were stronger-than-expected in January as the housing industry continues to lead the early economic recovery. New Home Sales were higher by 4.3% from last month and 19.3% from last year while the median sales price declined slightly from December, reflecting the sales mix towards more entry-level product. Inventory levels remain historically tight as the Months Supply of New Houses For Sale in the United States declined to 4.0 months, significantly below the 20-year average of 6.0 months. 

This morning, we heard results from home improvement firm Lowe's (LOW), which reported another stellar quarter of same-store sales, besting the results from rival Home Depot (HD) for the fourth-straight quarter, citing " continued consumer focus on the home." Comparable sales increased 28.1% in the quarter while comp sales in the U.S. increased 28.6%. As with Home Depot, however, investors were a bit disappointed by the outlook as the firm reiterated its guidance from its December Investor Update during which the Company presented its planning expectations for three potential scenarios for 2021 which assume a modest mix-adjusted market contraction.

Sticking on the housing theme, today we published Apartment REITs: Tale of Two Americas. Apartment REITs have a front-row seat to the burgeoning economic divide as the "urban exodus" continues to add fuel to the "suburban renaissance." While vaccines may eventually reverse recent dynamics, rental rates and occupancy levels have plunged in the high density, coastal "shutdown cities" that employed more draconian lockdown measures. Meanwhile, Apartment REITs focused on Sunbelt and suburban markets delivered a solid year of FFO and NOI growth in 2020, and rental rates continue to trend higher in early 2021. Outside of the troubled urban metros, national apartment markets have been remarkably resilient throughout the pandemic. Apartment REITs' exposure to the troubled markets is more limited than valuations suggest.

Real Estate Earnings Update

We're now on the home stretch of another newsworthy REIT earnings season. The wave of better-than-expected reports and dividend boosts continued over the last 24 hours as three more equity REITs - Gaming & Leisure Properties (GLPI), Retail Opportunity (ROIC), and Vereit (VER) - each boosted their dividends, bringing the total this year to 29. Of this total, 10 of the REITs had previously cut last year and their payouts remain below pre-pandemic levels. 

Net Lease: Vereit (VER) jumped more than 5% after boosting its dividend and reporting this morning that it collected 98% of Q4 rents and reporting that it sees AFFO/share growth of 4.5% in 2021. Essential Properties (EPRT) jumped nearly 4% after reporting yesterday afternoon that it collected 91% of Q4 rents and sees its AFFO per share rising nearly 12% in 2021. Getty Realty (GTY) finished higher by roughly 0.5% today after reporting yesterday afternoon that it collected 99% of Q4 rents and delivered a sector-best AFFO/share growth of 7.0% in 2020. Global Net Lease (GNL) finished higher/lower by about 2% after reporting this morning that it collected 99% of Q4 rents and ended 2020 with AFFO/share growth of 2.9%. American Finance (AFIN), Broadstone Net Lease (BNL), and EPR Properties (EPR) report results this afternoon. 

Hotels: Chatham Lodging (CLDT) jumped more than 4% after reporting this morning that it expects travel to rebound meaningfully in H2 2021 and into 2022 and 2023 as COVID-19 vaccinations roll out in the U.S. and the rest of the world. Hersha Hospitality (HT) jumped nearly 4% after reporting yesterday afternoon that it sees "credible signs that the resumption in travel demand has begun." Summit (INN) rallied more than 3% after reporting yesterday afternoon that it recorded positive Adjusted EBITDAre for the full year and positive hotel-level profitability for the second consecutive quarter. Apple Hospitality (APLE) and Pebblebook (PEB), meanwhile finished flat after reporting results yesterday afternoon while Ashford Hotels (AHT) and Diamondrock Hotels (DRH) report results this afternoon.

Data Centers: Iron Mountain (IRM) - which owns a relatively small portfolio of data centers - jumped more than 8% today after reporting better-than-expected results yesterday afternoon. After recording positive AFFO/share growth of 2% in 2020, IRM provided strong guidance indicating that it sees 6-11% growth in 2021. Earlier this week, 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.

Shopping Centers: Retail Opportunity (ROIC) finished lower by roughly 1.5% after reporting yesterday afternoon that it collected 92% of rents in Q4 and delivered sector-best full-year NOI and FFO metrics. ROIC recorded a full-year decline in Net Operating Income ("NOI") of -4.6% in Q4  and a modest 5% decline in FFO/share as the grocery-anchored REIT fared better than other power center REITs. However, ROIC doesn't see the inflection that other shopping center REITs have reported thus far as the REIT projects a 6% decline in FFO/share growth in 2021 with its same-store NOI growth lower by 0.8% at the mid-point of its guidance range. Whitestone REIT (WSR) reports results this afternoon. 

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 3.6% today and are now higher by 4.8% this week. Commercial mREITs jumped by 4.0% today and are now higher by 4.5% on the week. Anworth Mortgage (ANH) finished higher by more than 2% after reporting yesterday afternoon that its Book Value Per Share (BVPS) rose 2.9% in Q4 from the prior quarter to $3.13. ANH plans to merge with Ready Capital (RC) with an expected closing in Q2. We'll hear results from Colony Credit (CLNC), New York Mortgage Trust (NYMT), and TPG Real Estate Finance (TRTX) this afternoon.

Results thus far across the mREIT sector have been better-than-expected. Residential mREITs have reported an average increase in BVPS of nearly 6%  in Q4 while commercial mREITs have seen their BVPS rise by 5%. Tomorrow, we'll hear results from another five 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 lower by -0.10% today, on average, and underperformed their respective common stock issues by an average of -2.75% after the common shares of Diversified Healthcare (DHC) jumped nearly 5% after reporting earnings results. 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 6.52%.

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 saw New Home Sales data for January, continued 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.

Announcement: Hoya Capital Joins The REIT Forum

Hoya Capital is excited to announce that we’ve teamed up with The REIT Forum to bring the premier research service on Seeking Alpha to the next level. Exclusive articles contain 2-3x more research content including access to The REIT Forum's exclusive ratings and live trackers and valuation tools. Sign up for the 2-week free trial today! The REIT Forum offers unmatched coverage and top-quality model portfolios for Equity and Mortgage REITs, Real Estate ETFs and CEFs, High-Yield BDCs, and REIT Preferred Stocks & Bonds.

Join our Mailing List on our Website

The REIT Forum is the exclusive home to Hoya Capital premium research. Visit our website and join our email list for quick access to our real estate research library: HoyaCapital.com where we have links to all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

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