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Summary

  • U.S. equity markets finished mostly-lower Tuesday ahead of a critical slate of inflation data beginning Wednesday morning as employment data today showed a historic surge in American's quitting jobs.

  • Following declines of 0.7% on Monday, the large-cap S&P 500 slipped 0.2% today while the Mid-Cap 400 finished higher by 0.5% and the Small-Cap 600 gained 0.2%.

  • Real estate equities were among the leaders today - led once again by residential real estate sectors. The Equity REIT Index rallied 1.3% with 17-of-19 property sectors in positive-territory.

  • Canadian-based Tricon Residential (TCN) completed its dual-listing in the U.S. and is now traded on the NYSE under symbol TCN. Tricon owns roughly 25k single-family rentals, primarily in the Sunbelt region.

  • Worker Walkouts? JOLTs employment data today showed that workers quit their jobs at a record pace in August which economists attribute, in part, to vaccine mandates that began to take effect in August.

Real Estate Daily Recap

U.S. equity markets finished mostly-lower again Tuesday ahead of a critical slate of inflation data beginning Wednesday morning as employment data today showed that a historic number of Americans quit their jobs in August. Following declines of 0.7% on Monday, the large-cap S&P 500 slipped 0.2% today while the Mid-Cap 400 finished higher by 0.5% and the Small-Cap 600 gained 0.2%. Real estate equities were among the leaders today - led by once again by residential real estate sectors - as the Equity REIT Index rallied 1.3% today with 17-of-19 property sectors in positive territory while Mortgage REITs gained 0.8%.

Ahead of the closely-watched Consumer Price Index report tomorrow morning, the 10-Year Treasury Yield retreated back below 1.60% today. Bonds and yield-sensitive equity sectors were among the leaders today as a result including Real Estate (XLRE) and Utilities (XLU). Investors are also focused on the formal start of earnings season with most of the largest banks reporting results this week, kicking off tomorrow with JP Morgan (JPM). A strong day from residential REIT sectors - including manufactured housing, apartment, and storage REITs, lifted the broader Hoya Capital Housing Index to gains as well today ahead of the start of REIT earnings season next week.

Worker Walkouts? JOLTs employment data today showed that workers quit their jobs at a record pace in August while the total number of job openings unexpectedly declined. While the quit rate had been trending higher in recent months, economists attribute the spike in August to the combination of the "fourth wave" of COVID and the institution of vaccine mandates - many of which were formally announced or threatened in August - which has worsened an already tough staffing situation across many "essential" sectors. Survey data suggests that as much as 5% of the workforce in some sectors - including healthcare - stated the intent to resign if mandates were instituted while dozens of labor unions oppose the mandate and have filed legal challenges.

Equity REITs

Storage: Last night, we published Zero To Hero which analyzed recent developments in the self-storage sector and previewed third quarter earnings which will begin next week. Storage REITs stumbled into the pandemic with challenged fundamentals and an outlook for near-zero growth amid oversupply challenges. Catalyzed by the suburban housing boom, self-storage demand is suddenly insatiable. Like a phoenix rising from the ashes, storage REITs have continued their incredible turnaround this year. Consistent with trends across the housing sector, storage rents are soaring across the country. Despite the rally, valuations remain compelling as the sector's strong balance sheets, low cap-ex profile, and above-average external growth potential warrant a premium multiple relative to other REIT sectors.

Single Family Rental: Canadian-based Tricon Residential (TCN) completed its dual-listing in the U.S. and is now traded on the NYSE under symbol TCN. As part of its U.S. listing, TCN launched an offering of 46.2M common shares at $12.40/share and 4.9M additional shares through a private placement to Blackstone's (BX) non-traded REIT for total proceeds of $570M. Tricon is an owner and operator of 33,000 single-family rental homes and multi-family rental apartments in the United States and Canada with a primary focus on the U.S. Sunbelt. TCN joins American Homes (AMH) and Invitation Homes (INVH) as the third U.S. publicly-traded single-family rental REIT.

Mortgage REITs

Per our Mortgage REIT Tracker, residential mREITs gained 0.8% and are now higher by 1.4% this week. Commercial mREITs rallied 1.2% today to push their gains to 1.1% this week. Redwood Trust (RWT) gained nearly 2% after it announced that, together with Point, it has completed the first ever securitization backed entirely by residential Home Equity Investment ("HEI") agreements, issuing approximately $146 million of asset backed securities. HEIs are an alternative to Home Equity Lines of Credit (HELOCs) in which the lender acquires a minority stake in the underlying property and is entitled to a percentage of the home's appreciation at the end of the agreement.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.30% today, on average, and have produced total returns this year of roughly 15%. Over in the bond markets, Fitch Ratings affirmed Healthcare Realty's (HR) BBB+ Long-Term Issuer rating with a stable outlook. Fitch Ratings also affirmed and withdrew National Retail's (NNN) BBB+ Long-Term Issuer rating and its BBB- preferred stock rating with a stable outlook for "commercial reasons."

Economic Data This Week

The busy slate of economic data continues on Wednesday when we'll see the critical Consumer Price Index data for September which is expected to show that consumer inflation remained above 5% in September. The Producer Price Index on Thursday, meanwhile, is expected to show that producer costs rose nearly 9% for the month. Finally, on Friday, we'll see Retail Sales data for September which is expected to show a moderation in spending and we'll get the first look at October Consumer Sentiment data following a historic plunge last month.

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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
  • Storage REITs stumbled into the pandemic with challenged fundamentals and an outlook for near-zero growth amid oversupply challenges. Catalyzed by the suburban housing boom, self-storage demand is suddenly insatiable.

  • Like a phoenix rising from the ashes, storage REITs have continued their incredible turnaround this year. Consistent with trends across the housing sector, storage rents are soaring across the country.

  • Storage REITs delivered the most comprehensive "beat and raise" quarter of any REIT sector in recent memory. Every storage REIT now expects double-digit FFO and NOI growth this year.

  • Forward-looking indicators and interim updates suggest that third quarter results should be similarly strong. The demographic-driven housing boom bodes well for a sustained recovery into the mid-2020s.

  • Despite the rally, valuations remain compelling as the sector's strong balance sheets, low cap-ex profile, and above-average external growth potential warrant a premium multiple relative to other REIT sectors.

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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.

Summary

  • U.S. equity markets finished lower in a choppy Monday session as soaring commodities prices have put cost concerns back into the spotlight ahead of a busy week of inflation data.

  • Following gains of 0.8% last week, the S&P 500 slipped 0.7% today while the Mid-Cap 400 finished lower by 0.5% and the Small-Cap 600 declined 0.9%.

  • Real estate equities were among the leaders today - led by resurgent timber REITs - as the Equity REIT Index gained 0.3% today with 15-of-19 property sectors in positive territory.

  • Healthcare Trust of America (HTA) continued its rally today after announcing that it has been in discussions with activist firm Elliott Management, which has urged the firm to put itself up for sale.

  • We have another busy slate of economic data in the week ahead, headlined by inflation data with CPI data on Wednesday and PPI on Thursday. We'll also see Retail Sales data on Friday.

Real Estate Daily Recap

U.S. equity markets finished lower in a choppy Monday session as commodities prices continued to soar, putting cost pressures back into the spotlight ahead of a busy week of inflation data and the start of Q3 earnings season. Following gains of 0.8% last week, the S&P 500 slipped 0.7% today while the Mid-Cap 400 finished lower by 0.5% and the Small-Cap 600 declined 0.9%. Real estate equities were among the leaders today - led by residential real estate sectors - as the Equity REIT Index gained 0.3% today with 15-of-19 property sectors in positive territory while Mortgage REITs gained 0.1%.

As discussed in our Real Estate Weekly Outlook, evidence of a persistent labor shortage in the September jobs report - along with an intensifying energy crunch across the globe - has sent inflation expectations and interest rates to their highest levels since early June. Crude Oil (CL1:COM) prices closed above $80/barrel for the first time since late 2014 while Natural Gas. Timber REITs led the Hoya Capital Housing Index today as lumber prices are staging a late-season rally, indicating that home construction activity may again be reaccelerating following a late-summer cool down.

We have another busy slate of economic data in the week ahead, kicking off on Tuesday with the JOLTs Job Openings report for August, which is expected to set another new record high as employers continue to struggle to find workers. On Wednesday, we'll see the critical Consumer Price Index data for Wednesday which is expected to show that consumer inflation remained above 5% in September. The Producer Price Index on Thursday, meanwhile, is expected to show that producer costs rose nearly 9% for the month. Finally, on Friday, we'll see Retail Sales data for September which is expected to show a moderation in spending and we'll get the first look at October Consumer Sentiment data following a historic plunge last month.

Equity REITs

Healthcare: Healthcare Trust of America (HTA) was higher today after it issued a statement in response to a letter last week by activist investor Elliott Investment in which it urged the company to put itself up for sale. HTA stated today that it "held several discussions with representatives of Elliott to better understand their views, and those views were immediately shared with the full HTA Board." Last Friday, we published Healthcare REITs: Safe & Effective which discussed how the "fourth wave" of the COVID pandemic has pressured Healthcare REITs over the past quarter. Senior Housing REITs - the hardest-hit sub-sector - were leading the recovery as occupancy rates appear to have bottomed in early 2021, benefiting from the red-hot and undersupplied housing market. Staffing shortages have become critical issues at skilled nursing facilities, however, worsened by recent vaccine mandates.

Storage: This evening, we'll publish our updated Storage REIT report which will analyze recent developments and preview third quarter earnings which will begin next week. Storage REITs have risen like a phoenix from the ashes over the last year, delivering stellar results in the second quarter while leading indicators suggest Q3 results will be similarly strong. The Producer Price Index for self-storage facilities - which has historically exhibited a near-perfect correlation with same-store revenue growth metrics - showed a continued reacceleration through the end of Q3. The most recent August PPI report showed the strongest year-over-year rise in self-storage rents on record.

Mortgage REITs

Per our Mortgage REIT Tracker, residential mREITs gained 0.4% following gains of 1.0% last week. Commercial mREITs slipped 0.1% today after declining by 0.1% last week. New Residential Investment (NRZ) was higher today after it announced that it will acquire real estate lender Genesis Capital LLC, a business purpose lender to real estate developers, and a related portfolio of loans from affiliates of Goldman Sachs (GS). Genesis is expected to originate ~$2B of loans in 2021 and has originated more than 12,000 loans since 2014. NRZ plans to finance the acquisition - which should close by the end of this year - with existing cash and committed asset-based financing from Goldman, and Genesis will operate as an independent subsidiary of NRZ.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.02% today, on average, but have produced total returns this year of roughly 15%. Over in the bond markets last Friday, Realty Income (O) announced a series of exchange offers for notes issued by Vereit (VER) as part of its merger, which is expected to close by the end of the year. Also last Friday, Corporate Office's (OFC) BBB- long-term issuer credit rating was affirmed by Fitch while Alexandria Realty's (ARE) BBB+ credit rating was affirmed by S&P, which also revised ARE's outlook to positive from stable.

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.