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  • Alex Pettee, CFA

Fresh Records • Bid For Bonds • REIT Dividend Boosts

Summary

  • U.S. equity markets edged higher Friday as the bid for Treasury bonds continued despite yesterday's CPI report showing inflation at multi-highs while equity market volatility levels retreated to pre-pandemic lows.

  • Closing at fresh record highs for the second-straight day, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 finished higher by 0.8% and the Small-Cap 600 gained 0.7%.

  • Real estate equities lagged today on an otherwise strong week as the Equity REIT Index finished lower by 0.4% today with 9 of 19 property sectors in negative territory.

  • The 10-Year Treasury Yield was flat on the day but has declined in each of the past four weeks as investors bet that the recent surge in inflation will ultimately prove to be transitory.

  • Another day, another REIT dividend boost. Redwood Trust (RWT) gained more than 2% today after it boosted its dividend by 12.5%, representing a forward yield of roughly 6.1%.

Real Estate Daily Recap

U.S. equity markets edged higher Friday as the bid for Treasury bonds continued despite yesterday's CPI report showing inflation at multi-highs while equity market volatility levels retreated to pre-pandemic lows. Closing at fresh record highs for the second straight day, the S&P 500 (SPY) finished higher by 0.2% today while the Mid-Cap 400 (MDY) finished higher by 0.8% and the Small-Cap 600 (SLY) gained 0.7%. Real estate equities lagged today on an otherwise strong week as the Equity REIT Index finished lower by 0.4% today with 9 of 19 property sectors in negative territory while the Mortgage REIT Index declined by 0.9%.

The 10-Year Treasury Yield was flat on the day but has declined in each of the past four weeks as investors bet that the recent surge in inflation will ultimately prove to be transitory. Eight of the eleven GICS equity sectors finished higher on the day, led to the upside by the Financials (NYSEARCA:XLF) and Technology (XLK) sectors. 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.

Commercial Equity REITs

Office: Yesterday, we published Office REITs: No Going Back. Vaccines are here, masks are off, and sports stadiums are full. Office desks around the country remain eerily empty, however, as office utilization rates remain a fraction of pre-COVID levels. For many corporations, there's no going back - at least not to pre-COVID norms. Survey data revealed that office workers would accept pay cuts before returning to the 5-day in-person workweek. While the office isn't going away entirely, hybrid work environments - which require less office space - are increasingly standard. Commute times and cost-of-living factors are playing a major role in determining which markets recover faster.

Single Family Rentals: Earlier this week, we published PropTech Revolution, which discussed how the positive reverberations from the post-pandemic "housing boom" are now being felt across U.S. rental markets as single-family housing rents have soared in early 2021. Quieting the critics that questioned their ability to operate efficiently, SFR REITs have been leaders in using Property Technology (PropTech) to reduce costs, increase renter satisfaction, and fuel accretive growth. While the fast-growing SFR REITs appear pricey compared to other REIT sectors, valuations remain compelling compared to other PropTech disruptors in the housing ecosystem.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.8% today but ended the week higher by 4.3%. Commercial mREITs were higher by 0.4% today and closed the week with gains of 4.2%. Redwood Trust (RWT) gained more than 2% today after it declared a $0.18/share quarterly dividend, a 12.5% increase from its prior dividend of $0.16, representing a forward yield of roughly 6.1%. Elsewhere, AGNC Investment (AGNC) declined by more than 4% after it estimated that its tangible net book value per share was $16.82 as of May 31, 2021, down 6.4% from the $17.96/share value it estimated on April 30th. AGNC also filed for a mixed automatic shelf registration allowing the company to offer common stock, preferred stock debt securities, and/or depositary shares at its discretion.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.03% today, on average, and outperformed their respective common stock issues by an average of 0.15%. So far in 2021, REIT Preferred stocks are higher by 10.08% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.00% and trades at a slight premium to par value. Nano-cap REIT Presidio Property (SQFT) priced an offering of 8M of its Series D Cumulative Redeemable Perpetual Preferred Stock at $25.00/share and began trading on Nasdaq today. Over in the bond markets, RLJ Lodging (RLJ) priced an upsized offering of $500M of 3.750% senior secured notes due July 1, 2026.

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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