Keepin' It Real  

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Apartment Rents Rise • Mortgage Rates Decline • Net Lease Updates

Summary

  • U.S. equity markets finished higher Thursday amid a continued pullback in interest rates and inflation expectations as global growth expectations have been tempered by ongoing COVID struggles outside the U.S.

  • Pushing its week-to-date gains to nearly 2.0%, the S&P 500 finished higher by 0.4%, and was roughly matched in performance by the Mid-Cap 400 and Small-Cap 600 indexes.

  • Real estate equities were mostly lower today as the broad-based Equity REIT Indexes finished lower by 0.4% with 13-of-19 property sectors in negative territory while Mortgage REITs gained 0.6%.

  • Apartment rent growth accelerated at an impressive rate in Q1, according to new data from Yardi Matrix. Out of 134 markets surveyed, 114 had flat or positive YOY rent growth led by Sunbelt and suburban markets.

  • Housing stocks were lifted by lower rates as data from Freddie Mac showed that the 30-year fixed-rate mortgage declined for the first week since February, averaging 3.13% for the week ending April 8.

Real Estate Daily Recap

U.S. equity markets finished higher Thursday amid a continued pullback in interest rates and inflation expectations as global growth expectations have been tempered by ongoing COVID struggles outside the U.S. Pushing its week-to-date gains to nearly 2.0%, the S&P 500 ETF (SPY) finished higher by 0.5%, and was matched in performance by the Mid-Cap 400 (MDY) and Small-Cap 600 (SLY) indexes which each gained 0.5%. Real estate equities were mostly lower today as the broad-based Equity REIT ETFs (VNQ) finished lower by 0.4% with 13-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) finished higher by 0.6%.

It was another quiet day in the bond markets as well as the 10-Year Treasury Yield declined by 2 basis points to 1.63% - below its recent closing high last week of 1.75%. Eight of the eleven GICS equity sectors finished higher on the day, led to the upside by the Technology (XLK) sector while the Energy (XLE) sector lagged. The Hoya Capital Housing Index was led to the upside today by a strong day from the property technology and home improvement sectors while data from Freddie Mac showed that the 30-year fixed-rate mortgage declined for the first week since February, averaging 3.13% for the week ending April 8.

Commercial Equity REITs

Apartments: Data provider Yardi Matrix reported that the national average apartment rent rose to $1,407 in March, up 0.6% from its year-earlier level. Rents at the end of Q1 2021 were up 0.8 percent from their levels at the end of 2020, which was one of the strongest first quarters in several years. Out of 134 markets surveyed, 114 had flat or positive YOY rent growth. Outside of the troubled coastal metros that dominate the headlines and drive the investment narrative, national apartment markets - along with the broader U.S. housing industry - have been remarkably resilient throughout the pandemic. Per the Zillow (Z) ZORI Rent Index, the median U.S. apartment market has actually seen an acceleration in rent growth over the last year to 3.9% led by Sunbelt markets and coastal suburban markets.

Yesterday, we published Cannabis REITs: Still Flying High. The emerging Cannabis REIT sector has been far and away the best-performing property sector since the start of 2019, soaring more than 150% in 2020 following 70% gains the prior year. The momentum has continued this year after New York became the 15th state to fully legalize recreational marijuana. An additional 20 states allow medical usage, collectively covering 70% of the population. The ongoing federal prohibition - and the resulting limit on access to traditional banking - has forced cultivators and retailers to turn to alternative sources for capital, including cannabis REITs. IN the report, we discussed Innovative Industrial (IIPR), small-cap Power REIT (PW), and the newly-listed cannabis REIT AFC Gamma (AFCG).

Net Lease: W.P. Carey (WPC) announced a $119M sale-leaseback of three hypermarket properties located in Southern and Central France. The portfolio is triple-net leased to Distribution Casino France, a subsidiary of Casino Guichard-Perrachon, a food retailer. Elsewhere, Netstret (NTST) priced its upsized public offering of ~9.5M common shares (from 8M) at $18.65/share. NTST provided a business update earlier in the week in which it raised its external growth target for full-year 2021. Net lease REITs acquired more than $2 billion of real estate assets, on net, in the fourth quarter, a sharp acceleration following the slowdown in mid-2021 to end the year with net acquisitions of roughly $5.5 billion. Among the seven REITs that provided guidance, these REITs see acquisitions eclipsing $8 billion for 2021.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.4% today and are now flat on the week. Commercial mREITs gained 0.8% today and are now higher by 0.9% this week. This afternoon, AGNC Investment (AGNC) declared a $0.12/share dividend for April, which was in line with its prior rate, representing a forward yield of 8.4%. Helped by 17 mREIT dividend increases this year, the average residential mREIT is currently paying a forward dividend yield of 8.1% while the average commercial mREIT is yielding 6.8%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by -0.04% today, on average, and underperformed their respective common stock issues by an average of -0.03%. So far in 2021, REIT Preferred stocks are higher by 6.80% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.28% and trades at a slight discount to par value. As previously announced, SITE Centers (SITC) redeemed its 6.25% Series K Preferred Stock (SITC.PK) which was potentially callable beginning last May.

Over in the bond markets, CoreCivic (CXW) announced the pricing of the upsized offering of $450M (from $400M) of 8.25% senior unsecured notes due 2026, using the proceeds to redeem all $250M of outstanding 5.00% senior notes due 2022. Elsewhere, Uniti Group (UNIT) announced the pricing of $570M of 4.75% senior secured notes due 2028 which will be used to fund the redemption of its 6.00% senior secured notes due 2023.


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