• Alex Pettee, CFA

Dovish Fed • Inflation Stays Hot • REIT Dividend Boost

Summary

  • U.S. equity markets rebounded Friday - lifting the major averages to fresh records- after Federal Reserve officials indicated that monetary policy would remain accommodative in light of recent economic softness.

  • Ending the week with cumulative gains of 1.5%, the S&P 500 gained 0.9% today while the Mid-Cap 400 rallied 2.0% and the Small-Cap 600 jumped 2.9%.

  • Real estate equities were broadly higher as well with the Equity REIT Index gaining 1.1% today - and 0.4% on the week - with all 19 property sectors in positive territory.

  • Tts PCE Index - the Fed's "preferred" gauge of inflation - rose another 0.4% in July, pushing the annual rise to 4.2%, the largest year-over-year rise in prices since 1991.

  • Eastgroup Properties (EGP) became the 100th REIT to raise its dividend this year, declaring a $0.90/share quarterly dividend, a 13.9% increase from its prior dividend of $0.79.

Real Estate Daily Recap

U.S. equity markets rebounded Friday - lifting the major averages to fresh record-highs - after Federal Reserve officials indicated that monetary policy would remain accommodative in light of recent signs of economic softness. Ending the week with cumulative gains of 1.5%, the S&P 500 gained 0.9% today while the Mid-Cap 400 rallied 2.0% and the Small-Cap 600 jumped 2.9%. Real estate equities were broadly higher as well with the Equity REIT Index gaining 1.1% on the day - and 0.4% on the week - with all 19 property sectors in positive territory while Mortgage REITs gained 1.7%.

Dovish comments from Fed officials pulled the 10-Year Treasury Yield down by 3 basis points to 1.31% today despite PCE Price Index - the Fed's "preferred" inflation gauge - rising at the fastest rate since 1991. Ten of the eleven GICS equity sectors finished higher today, led to the upside by the Energy (XLE) and Communications (XLC) sectors. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders today - and were leaders on the week - following further evidence that the housing industry has begun to reaccelerate once again following a slowdown in the Spring and early Summer.

The BEA reported today that its PCE Index - the Fed's "preferred" gauge of inflation - rose another 0.4% in July, pushing the annual rise to 4.2%, the largest year-over-year rise in prices since 1991. The 3.6% annual rise in the Core PCE Index - which excludes food and energy - was also the highest in nearly 30 years. Fresh data Consumer Confidence data, meanwhile, showed that inflationary remains a significant concern for most Americans as consumers expect inflation to top 4.6% inflation over the next year.

Equity REITs

Industrial: Eastgroup Properties (EGP) became the 100th REIT to raise its dividend this year, declaring a $0.90/share quarterly dividend, a 13.9% increase from its prior dividend of $0.79. Earlier in the week, storage REITs National Storage (NSA) and ExtraSpace (EXR) each boosted their dividends, as did mortgage REIT New Residential (NRZ), and small-cap Presidio Property Trust (SQFT). As discussed last week in our State of the REIT Nation report, REIT company-level metrics have exhibited a substantial rebound over the last year as FFO and dividends per share have now fully recovered the sharp declines from early in the pandemic.

Timber: Earlier this week, we published Timber REITs: Upside As Shortages Ease. Scorching-hot lumber demand from the resurgent housing industry - combined with sawmill production bottlenecks - sent lumber prices soaring to extreme levels. Inflating construction materials prices - and the outright inability to source necessary goods - forced home builders to delay projects and put many smaller-scale renovation projects on hold. Despite reporting the fastest revenue growth of any REIT sector in early 2021, timber REITs have been the weakest-performing property sector as lumber prices slump. Valuations and fundamentals appear compelling amid historic levels of demographic-driven housing demand and record-low housing supply.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.3% today to close the week with gains of 3.2%. Commercial mREITs rallied 1.9% today to push its weekly gains to 2.8%. Tremont Mortgage Trust (TRMT) declared a final cash distribution of $0.17/share ahead of its pending merger with RMR Mortgage Trust (RMRM), which was necessary to satisfy the requirements to maintain REIT status. The average residential mREIT pays a dividend yield of 9.0% while the average commercial mREIT pays a dividend yield of 6.8%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.28%, on average, but underperformed their respective common stock issues by an average of 1.61%. So far in 2021, REIT Preferred stocks are higher by 10.81% on a price return basis. The average REIT preferred pays a current yield of 5.88% and trades at a slight premium to par value.

Economic Data This 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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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.

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