• Alex Pettee, CFA

Help Wanted • Rates Retreat • Record Highs

Summary

  • U.S. equity markets climbed to record-highs on Wednesday while bond yields remained in free-fall as investors digested minutes from last week's Fed meeting and data showing a record quantity of job openings.

  • Rebounding after snapping a seven-day win streak yesterday, the S&P 500 finished higher by 0.4% while the Mid-Cap 400 gained by 0.2% while Small-Caps slipped 0.6%.

  • Real estate equities were mostly higher today with "essential" sectors - housing and technology - leading the way as the Equity REIT Index gained 0.4% with 13-of-19 property in positive-territory.

  • Help Wanted! Job openings climbed to record-highs in May as employers struggle to offer competitive wages relative to generous unemployment benefits offered by the state and federal government.

  • U.S. businesses posted 9.21 million job openings last month - a quantity essentially even with the total number of unemployed Americans. The BLS reported last week that hiring accelerated in June to its strongest rate in 10 months.

Real Estate Daily Recap

U.S. equity markets climbed to record-highs on Wednesday while sovereign bond yields remained in free-fall as investors digested minutes from last week's Fed meeting and JOLTs data showing a record quantity of job openings. Rebounding after snapping a seven-day win streak yesterday, the S&P 500 finished higher by 0.4% while the Mid-Cap 400 gained by 0.2% while Small-Caps slipped 0.6%. Real estate equities were mostly higher today with "essential" sectors - housing and technology - leading the way as the Equity REIT Index gained 0.4% with 13 of 19 property sectors in positive territory while the Mortgage REIT Index finished lower by 1.0%.

All eyes have been on the sovereign bond markets this week as the benchmark 10-Year Treasury Yield briefly dipped below 1.30% today in a rather confounding move which comes despite continued upward inflationary pressure across housing and energy markets. Eight of the eleven GICS equity sectors finished higher today, led to the upside by the Materials (XLB) and Industrials (XLI) sectors while Energy (XLE) lagged once again on continued uncertainty over an OPEC output agreement. Homebuilders led the Hoya Capital Housing Index to gains today on expectations of lower mortgage rates ahead given the retreat in sovereign yields, which should set the stage for a strong back-half of the year for the broader housing industry.

Help Wanted! Job openings climbed to record-highs in May as employers struggle to offer competitive wages relative to generous unemployment benefits offered by the state and federal government. According to fresh JOLTs data this morning from the Bureau of Labor Statistic, U.S. businesses posted 9.21 million job openings last month - a quantity essentially even with the total number of unemployed Americans - which marked the fifth straight month of increases. The BLS reported last week that hiring accelerated in June to its strongest rate in 10 months, which comes as additional states have begun to phase out the supplemental pandemic-related unemployment benefits.

Commercial Equity REITs

Cannabis: Innovative Industrial (IIPR) provided a business update today in which it noted that it invested in four additional properties in Q2, which we discussed yesterday in High On Growth. Cannabis REITs are riding a seemingly never-ending 'high' since bursting onto the scene in the late 2010s, thriving in the murky and often contradictory regulatory framework of legalized marijuana. While still early in the evolution of the industry, we see emerging parallels with the casino industry where REITs have carved out a profitable and attractive niche with a sustainable competitive advantage. Critically, as additional states adopt tax and regulatory frameworks, marijuana cultivation licenses are increasingly "attached" to the real estate asset.

Malls: Authentic Brands, which is Simon Properties' (SPG) joint-venture partner on the SPARC Group, filed for an IPO today, planning to trade on the NYSE under ticker symbol AUTH. Through the SPARC Group, SPG and AUTH own owns brands such as Eddie Bauer, Brooks Brothers, Lucky Brand, Nautica, Aéropostale, and Forever 21. Mall REITs are looking to regain their footing after reporting historic plunges in Funds From Operations ("FFO") and Net Operating Income ("NOI") in 2020. Post-pandemic economic reopening and improving rent collection rates have given investors some reason for optimism recently as the sector reported collection rates improving in Q1.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 1.5% today and are now lower by 2.7% this week. Commercial mREITs slipped 1.3% today and are now off by 1.5% on the week. Ellington Financial (EFC) finished lower by 4.2% after it priced a downsized public offering of 6M common shares (from 7.5M) at $18.22/share, planning to use the proceeds to acquire targeted assets, for working capital and general corporate purposes. Elsewhere, Arlington Asset Investment (AAIC) announced plans to offer senior notes due 2026 with pricing expected later this week, planning to use proceeds to redeem all or a portion of its 6.625% Senior Notes due 2023.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.12% today, on average, and outperformed their respective common stock issues by an average of 1.15%. So far in 2021, REIT Preferred stocks are higher by 9.81% on a price return basis. The average REIT preferred pays a current yield of 5.93% and trades at a slight premium to par value.

Economic Data This Week

The economic calendar slows down a bit in the holiday-shortened week ahead. On Wednesday, we saw Job Openings and Labor Turnover ("JOLTS") data for May. We'll also be watching Jobless Claims data on Thursday and a flurry of Purchasing Managers' Index ("PMI") data throughout the week.

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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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