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Summary

  • U.S. equity markets stretched their rally to a sixth straight session today following another slate of solid earnings results and on reports that Democrats are pursuing a scaled-back tax-and-spending plan.

  • Closing within a quarter-percent of fresh all-time highs, the S&P 500 climbed another 0.4% today while the Mid-Cap 400 gained 0.8% and the Small-Cap 600 rose 0.6%.

  • Real estate equities were among the leaders today as the Equity REIT Index gained 1.6% with 17-of-19 property sectors in positive territory while mortgage REITs gained 0.6%.

  • Data center REIT CyrusOne (CONE) jumped 5% after Cowen analyst Colby Synesael upgraded CONE to Outperform on the expectation that the long-rumored takeout is "imminent."

  • We'll hear results this afternoon from Crown Castle (CCI), First Industrial (FR), Rexford (REXR), and SL Green (SLG). Then tomorrow morning, we'll hear results from Safehold (SAFE).

Real Estate Daily Recap

U.S. equity markets stretched their rally to a sixth straight session today following another slate of solid earnings results and on reports that Democrats are pursuing a scaled-back tax-and-spending plan. Closing within a quarter-percent of fresh all-time highs, the S&P 500 climbed another 0.4% today while the Mid-Cap 400 gained 0.8% and the Small-Cap 600 rose 0.6%. Real estate equities were among the leaders today as the Equity REIT Index gained 1.6% with 17-of-19 property sectors in positive territory while Mortgage REITs gained 0.6%.

Nine of the eleven GICS equity sectors were higher today, led today by the domestic-focused and yield-sensitive segments of the market including Utilities (XLU) and Real Estate (XLRE). The 10-Year Treasury Yield was steady today near four-month highs as the relentless rise in Commodities (DJP) continued today to push their year-to-date gains to over 40% - the best-performing major asset class this year. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders today on data showing a continued surge in rents ahead of Existing Home Sales data tomorrow.

Equity REITs & Homebuilders

Yesterday we published our Real Estate Earnings Preview. Real estate earnings season kicks off this week, and over the next month, we'll hear results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. Residential REITs and specialty REIT sectors - billboard, cannabis, and timber REITs - delivered the strongest returns over the last quarter. Large-cap technology REITs have uncharacteristically lagged. The report will discuss the major themes and metrics we'll be watching across each of the real estate property sectors this earnings season in what will surely be another newsworthy and potentially volatile several weeks for the red-hot real estate sector. We'll hear results this afternoon from Crown Castle (CCI), First Industrial (FR), Rexford (REXR), and SL Green (SLG).


Shopping Center: Kite Realty (KRG) and Retail Properties of America (RPAI) jointly announced that shareholders of both companies approved all of the proposals necessary for the closing of the previously announced merger of the two REITs with Kite Realty continuing as the surviving public company. The deal is expected to close on Friday. We've seen the "animal spirits" come alive this year with two shopping center IPOs - Phillips Edison (PECO) and InvenTrust (IVT) and two major consolidations with Kimco Realty (KIM) buying Weingarten and Kite Realty (KRG) buying Retail Properties of America. This earnings season, we'll be focused on leasing spreads and occupancy rates which appeared to definitively bottom in early 2021.

Data Center: Speaking of M&A, CyrusOne (CONE) jumped 5% after Cowen analyst Colby Synesael upgraded CONE to Outperform on the expectation that a "takeout is imminent." Last month, Reuters reported that CONE was "exploring its strategic options" which included a potential sale of the company. Citing "industry contacts," Cowen believes that a takeout will soon occur at $85-90/share. Back in June, QTS Realty was acquired by Blackstone (BX) in an all-cash deal at $78/share - a roughly 21% premium to QTS's prior closing price. Several weeks earlier, DigitalBridge acquired Landmark Dividend and has proposed to acquire the outstanding common shares of Landmark Infrastructure Partners (LMRK) for $13.00/share, but two competing offers have emerged over the last two months as a bidding war develops for the small-cap MLP.

Mortgage REITs

Per our Mortgage REIT Tracker, mREITs were mostly-higher today as commercial mREITs gained 0.7% and are now higher by 1.1% this week while residential mREITs climbed 0.2% to push their weekly gains to 0.9%. On a relatively quiet day of newsflow ahead of the start of earnings season next week, New York Mortgage Trust (NYMT) and KKR Real Estate (KREF) led the way today. The average residential mREIT now pays a dividend yield of 8.4% while the average commercial mREIT pays a dividend yield of 6.5%.

Economic Data This Week

The busy week of economic and housing data continues on Thursday when the National Association of Realtors releases Existing Home Sales data which is expected to show an acceleration back above the 6M annualized rate following a late-summer cooldown. We'll also be monitoring a flurry of Purchasing Managers Index ("PMI") data throughout the week. We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

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The REIT Forum is now 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 all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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.

  • Alex Pettee, CFA

Summary

  • U.S. equity markets were broadly higher Tuesday following another slate of solid corporate earnings results, outweighing ongoing concerns about lingering supply chain issues and a global energy crunch.

  • Finishing higher for the fifth-straight trading session, the S&P 500 climbed another 0.8% today while the Mid-Cap 400 gained 0.3% and the Small-Cap 600 rose 0.2%.

  • Real estate equities were mixed today as the Equity REIT Index gained 0.1% - boosted by a rebound from technology REITs - but 15-of-19 property sectors finished in negative territory.

  • Equity LifeStyle (ELS) kicked off earnings season Monday afternoon with another stellar report, raising its full-year NOI guidance to 8.4% - an increase of 50 basis points - and its FFO outlook to 15.2%.

  • Crypto has again dominated the spotlight as Bitcoin (BTC-USD) climbed to fresh record highs as the first Bitcoin ETF - which holds derivatives contracts tracking the price of bitcoin - began trading today.

Real Estate Daily Recap

U.S. equity markets were broadly higher Tuesday following another slate of solid corporate earnings results, outweighing ongoing concerns about lingering supply chain issues and a global energy crunch. Finishing higher for the fifth-straight trading session, the S&P 500 climbed another 0.8% today while the Mid-Cap 400 gained 0.3% and the Small-Cap 600 rose 0.2%. Real estate equities were mixed today as the Equity REIT Index gained 0.1% - boosted by a rebound from technology REITs - but 15-of-19 property sectors finished in negative territory while Mortgage REITs gained 0.4%.

Crypto has again dominated the spotlight as Bitcoin (BTC-USD) climbed to fresh record highs as the first Bitcoin ETF - which holds derivatives contracts tracking the price of bitcoin - began trading today. Nine of the eleven GICS equity sectors were higher on the day, led to the upside by the Healthcare (XLV), Utilities (XLU), and Energy (XLE) sectors. The 10-Year Treasury Yield, meanwhile, is again flirting with four-month highs at 1.64% amid a relentless rise in energy prices, which climbed again today after Russia threatened to withhold natural gas from Europe unless it was granted approval for the Nord Stream 2 pipeline.

Following better-than-expected Homebuilder Sentiment data yesterday, the Census Bureau reported today that Housing Starts and Building Permits were slightly softer than expected in September - driven primarily a pullback in multifamily construction - as supply-chain constraints lingered in September. Starts declined 1.6% from the prior month to a 1.56 million annualized rate while Permits declined 7.7% from the prior month to an annualized 1.59 million units in September. Yesterday, the NAHB reported that homebuilder confidence jumped in October, rising 4 points to 80 on strong home buyer demand and signs of some relief in supply chain headwinds in early October.

Equity REITs & Homebuilders

Today we published our Real Estate Earnings Preview. Real estate earnings season kicks off this week, and over the next month, we'll hear results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. Residential REITs and specialty REIT sectors - billboard, cannabis, and timber REITs - delivered the strongest returns over the last quarter. Large-cap technology REITs have uncharacteristically lagged. The report will discuss the major themes and metrics we'll be watching across each of the real estate property sectors this earnings season in what will surely be another newsworthy and potentially volatile several weeks for the red-hot real estate sector. We'll hear results tomorrow from Crown Castle (CCI), First Industrial (FR), Rexford (REXR), and SL Green (SLG).

Manufactured Housing: Equity LifeStyle (ELS) kicked off earnings season Monday afternoon with another stellar report, raising its full-year NOI guidance to 8.4% - an increase of 50 basis points - and its FFO outlook by another 140 basis points to 15.2%. ELS also provided preliminary 2022 guidance, noting that it expects Core MH rent growth of 4.7% and RV rent growth of 5.0%, each accelerating from the 4.2% growth projected for 2021. Consistent with the trends across the residential REIT industry, MH REITs significantly boosted their growth outlook in Q2, citing strong rental housing demand and substantial upward rent pressures. Sun Communities (SUI) will report results next week and UMH Properties (UMH) will report the following week.

Data Center: Equinix (EQIX) was among the leaders today after it announced with PGIM Real Estate an agreement to establish a $575M joint venture to develop and operate two data centers in Sydney, Australia. Under the terms of the agreement, PGIM Real Estate will control an 80% equity interest in the joint venture, and Equinix will own the remaining 20% equity interest. The joint venture is expected to close in Q4 2021, pending regulatory approval and other closing conditions. After delivering the strongest returns of any REIT sector last year, data center REITs enter earnings season as the weakest-performing sector this year as fundamentals have been largely unaffected by the pandemic and subsequent reopening - for better and worse.

Mortgage REITs

Per our Mortgage REIT Tracker, mREITs were mixed today as residential mREITs gained 0.3% and are now higher by 0.7% this week. Commercial mREITs declined 0.4% but remain higher by 0.5% this week. Franklin BSP Realty (FBRT) began trading on the NYSE today following the completion of the merger between Benefit Street Partners and Capstead Mortgage (CMO). FBRT - which will be externally managed by Benefit Street - has roughly $3 billion of assets. The average residential mREIT now pays a dividend yield of 8.48% while the average commercial mREIT pays a dividend yield of 6.5%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker, REIT Preferred stocks finished higher 0.19% today. So far in 2021, REIT Preferred stocks are higher by 11.78% on a price return basis and have produced total returns of roughly 15%. As part of the aforementioned merger, each outstanding share of Capstead’s 7.50% Series E Cumulative Redeemable Preferred Stock (CMO.PE) was converted into FBRT’s 7.50% Series E Cumulative Redeemable Preferred Stock. Over in the bond markets today, American Tower (AMT) announced that it completed its redemption of all $715.1M of its outstanding 4.70% senior unsecured notes due 2022.

Economic Data This Week

We have a jam-packed week of economic and housing data in the week ahead, continuing on Thursday when the National Association of Realtors releases Existing Home Sales data which is expected to show an acceleration back above the 6M annualized rate following a late-summer cooldown. We'll also be monitoring a flurry of Purchasing Managers Index ("PMI") data throughout the week.

To Continue Reading, Click Here To Visit Seeking Alpha!


Join our Mailing List on our Website

The REIT Forum is now 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 all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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.

  • Real estate earnings season kicks off this week. We'll see results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies over the next month.

  • REITs enter third-quarter earnings season as the second-best-performing asset class this year with total returns of nearly 30%, trailing only commodities which have similar inflation-hedging characteristics.

  • Residential REITs and specialty REIT sectors - billboard, cannabis, and timber REITs - delivered the strongest returns over the last quarter. Large-cap technology REITs have uncharacteristically lagged.

  • It'll be hard to top the record-pace of "beat and raise" reports in Q2 in which 95% of equity REITs topped consensus FFO estimates and 75% of the REITs that provide forward guidance boosted their full-year outlook.

  • 110 REITs have already hiked their dividends this year. We discuss the themes and metrics we'll be watching across all of the major real estate property sectors this earnings season.

Click Here To Read The Full Report on Seeking Alpha!


Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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.