• Alex Pettee, CFA

Fed On Hold? • Dip Buying • Rents Soar

Summary

  • U.S. equity markets rebounded Friday - but ended a choppy week with broad-based declines - amid investor concerns that the resurgence of global COVID cases could stall the economic recovery.

  • Ending the week with cumulative declines of -0.5%, the S&P 500 finished higher by 0.8% today while the Mid-Cap 400 gained 1.1% and the Small-Cap 600 rallied 1.5%.

  • Real estate equities were broadly higher today - and were among the leaders this week - as the Equity REIT Index gained 0.8% with 18 of 19 property sectors in positive territory.

  • Zillow reported strength across both the ownership and rental markets with national rents soaring by a record-high rate of 9.2% in July while home price appreciation also set fresh records.

  • 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.

Real Estate Daily Recap

U.S. equity markets rebounded Friday - but ended a choppy week with broad-based declines - amid investor concerns that the resurgence of global COVID cases could stall the economic recovery. Ending the week with cumulative declines of -0.5%, the S&P 500 finished higher by 0.8% today while the Mid-Cap 400 gained 1.1% and the Small-Cap 600 rallied 1.5%. Real estate equities were broadly higher today - and were among the leaders this week - as the Equity REIT Index gained 0.8% with 18 of 19 property sectors in positive territory while Mortgage REITs rallied 1.6%.

Equities were given a boost this morning by comments from Dallas Fed President Kaplan, who said he’s open to adjusting his view that the Fed should begin tapering if the COVID resurgence shows signs of stalling the recovery. All eleven GICS equity sectors were higher today, led to the upside by the Technology (XLK) and Utilities (XLU) sectors. Homebuilders and the broader Hoya Capital Housing Index rebounded after data from Zillow (Z) yesterday showed strength across both the ownership and rental markets with national rents rising by a record-high year-over-year rate of 9.2% in July.

Equity REITs

Today, we published Mall REITs: Fears of Double Dip. Glimmers of hope were beginning to emerge for the battered mall REIT sector, which has soared 50% this year on signs of stabilizing in occupancy rates and normalizing rent collection. High-frequency activity data - including TSA Checkpoint data, Open Table reservation data, Apple mobility data, and the Dallas Fed Mobility Index suggest that economic reopenings have stalled - and even reversed in some areas - amid this "fourth wave" of the pandemic. Despite seemingly reasonable valuations, we believe that risks remain skewed to the downside.

Earlier this week, we published our State of the REIT Nation report which analyzed recently-released NAREIT T-Tracker data to review high-level REIT fundamentals over the past quarter through a series of charts. 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. Dividend payout ratios remain historically low, indicating embedded growth. REITs are no longer "cheap" but that's quite alright. Premium valuations have revived the "animal spirits" and sparked a much-needed wave of M&A and IPO activity and facilitated external growth.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.6% today but still ended the week lower by 1.4%. Commercial mREITs rallied 1.8% but ended the week off by 2.0%. ARMOUR Residential REIT (ARR) declared a $0.10/share monthly dividend, in line with its previous rate, representing a forward yield of roughly 11.6%. The average residential mREIT pays a dividend yield of 9.0% while the average commercial mREIT pays a dividend yield of 6.9%.


REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.24% today, on average, but underperformed their respective common stock issues by an average of 1.19%. So far in 2021, REIT Preferred stocks are higher by 8.89% on a price return basis. The average REIT preferred pays a current yield of 6.00% and trades at a slight premium to par value. Over in the bond markets, Terreno (TRNO) announced the private placement of $125 million 2.38% nine-year senior unsecured notes and intends to use the net proceeds from the offering to fund future acquisitions.

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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