• Alex Pettee, CFA

Fresh Records • Builders Lead • REIT Earnings Updates

Summary

  • U.S. equity markets were broadly higher Friday - pushing the major averages to solid weekly gains - as investors shrugged off COVID concerns following a strong start to earnings season.

  • Pushing its weekly gains to 2% and closing at fresh record-highs, the S&P 500 advanced 1.0% today while the Mid-Cap 400 gained 0.9% and the Small-Cap 600 gained 0.2%.

  • Real estate equities were higher today - led by residential REITs and homebuilders - as the Equity REIT Index finished higher by 0.9% with 16-of-19 property sectors in positive territory.

  • Homebuilders led the way today - and on the week - following a slate of solid housing data and encouraging earnings reports this week from DR Horton (DHI) and Tri Pointe (TPH).

  • 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 were broadly higher Friday - pushing the major averages to solid gains on the week - as investors shrugged off COVID concerns following a strong start to corporate earnings season. Pushing its weekly gains to 2% and closing at fresh record-highs, the S&P 500 advanced 1.0% today while the Mid-Cap 400 gained 0.9% and the Small-Cap 600 gained 0.2%. Real estate equities were higher today - led by residential REITs and homebuilders - as the Equity REIT Index finished higher by 0.9% with 16-of-19 property sectors in positive territory while Mortgage REITs finished flat.

Ten of the eleven GICS equity sectors finished in positive territory today, led to the upside by the Communications (XLC) sector following strong results from social media companies Twitter and Snap. Homebuilders and the broader Hoya Capital Housing Index were among the leaders today and on the week following a slate of solid housing data and encouraging earnings reports this week from DR Horton (DHI) and Tri Pointe (TPH) which showed continued momentum behind the housing industry. 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

Net Lease: Alpine Income Trust (PINE) gained about 2% today after announcing Q2 results yesterday afternoon. PINE announced that it continues to collect 100% of contractual base rents, including collecting the last meaningful portions of our COVID-19 deferred rent repayments. However, PINE did downwardly revise its full-year guidance, reflecting the sale of its office properties leased to Hilton Grand Vacations and Wells Fargo. Fueled by recovering valuations and ample access to capital, most net lease REITs are now back to doing what they do best as the vaccine-driven rebound "reopened the spigot" for the well-capitalized REITs at an impressive pace.

Hotels: Braemar Hotels (BHR) was flat today after announcing preliminary Q2 results. While the company did not provide occupancy figures, it did note that it achieved positive corporate level cash flow for the second quarter in a row, with two out of its five urban properties generating positive Hotel EBITDA in the quarter. BHR commented, "it's clear that the recovery is well underway for this demand segment as we move into the second half of the year." As discussed in Time To Get Away, while the recovery in domestic leisure travel is nearly complete, international tourism will likely remain depressed and recent outbreaks suggest risks are skewed to the downside for the hospitality industry.

As discussed in our Real Estate Earnings Preview, REIT earnings season kicked off this week, and over the next month, we'll hear results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. REITs enter second-quarter earnings season as the best-performing asset class this year with total returns over 25%. Residential REITs have been the positive standouts over the last quarter following a slate of impressive Q1 earnings results and recent data showing a historic surge in apartment and single-family rents.

Mortgage REITs

This week, we published Mortgage REITs: High Yield Bargains. Mortgage REITs endured punishing declines during the pandemic, but have nearly tripled from their lows and are back within shouting distance of pre-pandemic highs. The wave of dividend cuts in 2020 has given way to a frenzy of increases this year as 20 mREITs have raised their payouts. Mortgage REITs now pay an average yield of over 8%, a hearty premium to the 3.1% dividend yield paid by the average Equity REIT. Despite the plunge last year, mortgage REITs have delivered superior total returns compared to equity REITs over the past 5-years, but have underperformed over a 10 and 20-year horizon.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.05% today, on average, but outperformed their respective common stock issues by an average of 0.22%. Pebblebrook Hotels (PEB) announced it will redeem all of its 6.50% Series C Cumulative Preferred on August 22, 2021 and all of its 6.375% Series D Preferred (PEB.PD) on August 21, 2021 using the proceeds from its new 5.70% Series H Preferred.

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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