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  • Alex Pettee, CFA

ECB Goes Jumbo • Apartment REIT Updates • Mixed Jobs Data

  • U.S. equity markets finished modestly higher Thursday in a choppy session after the European Central Bank delivered a "jumbo" rate hike while slashing its forecast for the region's economic growth.

  • On pace to snap a three-week skid, the S&P 500 advanced 0.4% today - pushing its week-to-date gains above 2.0% - while the tech-heavy Nasdaq 100 advanced 0.2%.

  • Real estate equities were mostly-higher today - led by office and industrial REITs - with the Equity REIT Index advancing by 0.2% today with 9-of-18 property sectors in positive territory.

  • A pair of apartment REITs - Camden Property and UDR - provided business updates that showed that rent growth remains in the low-double digits despite the broader housing industry cooldown.

  • Mortgage REIT AGNC Investment announced a new preferred issuance today, pricing $150M of 7.75% Series G Fixed-Rate Cumulative Redeemable Preferred that will trade on Nasdaq under symbol AGNCL.

 

Real Estate Daily Recap

U.S. equity markets finished modestly higher Thursday in a choppy session after the European Central Bank delivered a "jumbo" rate hike while slashing its forecast for the region's economic growth amid a crippling energy crisis. On-pace to snap a three-week skid, the S&P 500 advanced 0.4% today - pushing its week-to-date gains above 2.0% - while the tech-heavy Nasdaq 100 advanced 0.2%. Continuing a solid week of outperformance, real estate equities were mostly-higher again today, led on the upside by office and industrial REITs while farmland REITs lagged. The Equity REIT Index advanced by 0.2% today with 9-of-18 property sectors in positive territory while the Mortgage REIT Index gained 0.2%.

Benchmark interest rates in the U.S. were little-changed today after a pair of closely-watched central bank speeches from Fed Chair Powell and ECB President Lagarde were consistent with the recent hawkish pivot in global monetary policy since early Summer. The 10-Year Treasury Yield ticked higher by 3 basis points today to close at 3.29% while the US Dollar Index continued its relentless march higher and Crude Oil prices settled around eight-month lows. There were more mixed signals on the labor market front as Initial Jobless Claims retreated for a fourth-straight week to the lowest-levels since June but Continuing Claims continued their recent upward trajectory, rising to levels that are roughly 12% above the recent lows in June.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Apartment: A pair of REITs provided business updates ahead of the Bank of America Securities 2022 Global Real Estate Conference next week which showed that rent growth remains in the low-double digits despite the broader housing industry cooldown. Sunbelt-focused Camden Property (CPT) noted that it has achieved blended rent growth of roughly 12.4% so far in Q3 - moderating from the 15.2% rate in Q2 - comprised of new lease spreads of 12.8% and renewal spreads of 11.9%. UDR (UDR) announced that it achieved blended rent growth of 15.7% in July and 13.5% in August - moderating from the 17.4% achieved in Q2. Elsewhere, Equity Residential (EQR) announced plans with Toll Brothers (TOL) to develop three new luxury multifamily rental communities totaling 1,053 units in the Dallas/Ft. Worth area. EQR will invest 75% of the equity while Toll Brothers will invest 25%.

Single-Family Rentals: Today we published SFR REITs: Capitalizing On Cooldown on the Income Builder Marketplace. One of the best-performing property sectors over the past quarter, SFR REITs have been beneficiaries of surging mortgage rates, which has made renting single-family homes a relative bargain. Single-family rents rose at the fastest pace on record through mid-2022, an elevated pace that has staying-power given the significant 'embedded' rent growth resulting from below-market renewal offers as SFR REITs have "throttled" rent hikes on existing tenants. Cooling home price appreciation and tightening credit conditions, meanwhile, have prompted many smaller SFR investors to pull back, providing a more favorable external growth environment for SFR REITs. We discuss our updated outlook and recent portfolio allocations in the full report published here.

Land REITs: Yesterday we published Land REITs: Hedge Inflation - And Chaos. While still outperforming the REIT Index this year, timber and farmland REITs have pulled back amid cooling inflation expectations, slumping global commodity demand, and regional weather complications. As the Russia-Ukraine conflict drags on, significant global market share gains are accruing to North American producers of the disrupted agricultural products - notably lumber and grains - supporting land values. "Feast or famine" has been a theme in the farmland sector of late. Despite severe drought conditions in the West, a productive growing season in the Midwest and South has raised aggregating U.S. farm incomes to near-record highs this year. For timber REITs, lumber prices have moderated back towards pre-pandemic levels as slumping home construction demand resulting from rising rates follows a record year of profitability. The rate-driven cooldown, however, simply defers the longer-term need for increased single-family home production.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs rebounded as well today residential mREITs and commercial mREITs each advancing 0.9%. AGNC Investment (AGNC) announced a new preferred issuance today - pricing $150M of 7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock that will trade on Nasdaq under symbol AGNCL beginning next week. AGNC intends to use the net proceeds to expand its portfolio and general corporate purposes, which may include the redemption of its 7.000% Series C (AGNCM) Fixed-to-Floating Cumulative Preferred. On a quiet day of mREIT newsflow, Ready Capital (RC), Angel Oak (AOMR), and Annaly Capital (NLY) led on the upside while Brightspire (BRSP) and TPG Real Estate (TRTX) dragged on the downside.

Economic Data This Week

The economic calendar slows down in the Labor Day-shortened week ahead with U.S. equity and bond markets closed on Monday. Purchasing Managers' Index ("PMI") data will continue to be the major focus this week with a busy slate of reports released this morning with more to come throughout the week. We'll also be watching Jobless Claims data on Thursday. Investors should also expect another noisy week of Fed commentary as the "Blackout Period" before the September FOMC Meeting will begin at midnight on Friday.

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.

Hoya Capital Research & Index Innovations (“Hoya Capital”) is an affiliate of Hoya Capital Real Estate, a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations provides non-advisory services including market commentary, research, and index administration focused on publicly traded securities in the real estate industry.


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