• Alex Pettee, CFA

Inflation Week • Commodity Slump • REIT Earnings

Summary

  • U.S. equity markets were mostly lower Monday while commodities prices slumped ahead of a busy week of inflation data as investors balance ongoing COVID concerns against strong corporate earnings results.

  • Following gains of 1% last week, the S&P 500 finished lower by 0.1% today while the Mid-Cap 400 slipped 0.4% and the Small-Cap 600 declined 0.8%.

  • Real estate equities were mostly lower today as the Equity REIT Index declined by 0.5% today with 15 of 18 property sectors in negative territory while Mortgage REITs slipped 0.6%.

  • Inflation data highlights this week's economic calendar with CPI data on Wednesday and PPI data on Thursday. Last month, core consumer prices rose at the fastest rate since 1992.

  • Following strong results last week from Innovative Industrial, small-cap Power REIT gained 8% today after reporting that its growth trajectory continued in Q2 with its Core FFO rising 76% from last year.

Real Estate Daily Recap

U.S. equity markets were mostly lower Monday while commodities prices slumped ahead of a busy week of inflation data as investors balance ongoing COVID concerns against strong corporate earnings results. Following gains of 1% last week, the S&P 500 finished lower by 0.1% today while the Mid-Cap 400 slipped 0.4% and the Small-Cap 600 declined 0.8%. The tech-heavy Nasdaq 100 gained 0.2%. Real estate equities were mostly lower today as the Equity REIT Index declined by 0.5% today with 15 of 18 property sectors in negative territory while Mortgage REITs slipped 0.6%.

As discussed in our Real Estate Weekly Outlook, concerns over the outlook for global economic growth - driven by ongoing struggles with the COVID delta variant - have pressured commodity prices in recent weeks and briefly sent the 10-Year Treasury Yield below 1.15% before rebounding back above 1.30% following the better-than-expected payrolls report last Friday. Eight of the eleven GICS equity sectors finished lower on the day, dragged on the downside by the Energy (XLE) sector while residential REITs and the broader Hoya Capital Housing Index pulled back ahead of the final slate of second-quarter real estate earnings reports over the next 48 hours.

Inflation data highlights this week's economic calendar, beginning on Wednesday with the Consumer Price Index, which is expected to show that prices rose at a 5.3% year-over-year rate in July, a slight deceleration from last month when core consumer prices rose at the fastest rate since 1992. On Thursday, we'll see the Producer Price Index which is expected to show a 7.4% year-over-year rate in July, which would be the highest on record. We'll then get our first look at Consumer Sentiment data for early August, which has waned in recent months amid consumer concern over inflation.

Real Estate Earnings Updates

Last Friday, we published our Real Estate Earnings Recap. With just a handful of REITs left to report results this week, results were significantly better-than-expected with roughly 90% of equity REITs beating consensus FFO estimates while more than 75% of the REITs that provide forward guidance boosted their full-year outlook. We'll hear results this afternoon from healthcare REIT National Health Investors (NHI), diversified REIT Preferred Apartments (APTS), and prison operator CoreCivic (CXW).

Data Center: Iron Mountain (IRM) - which has focused recent investments on its digital infrastructure business - was among the leaders today after announcing that it signed a 2.4MW lease with a "leading hyperscale enterprise software provider" expected to commence in the first quarter of 2022 with a lease term of ten years. Last week, IRM announced that it has executed 12.6 MW of new and expansion leasing so far in 2021 and increased its full-year data center leasing to greater than 30 megawatts from its previous guidance of 25 to 30 megawatts. For context, Digital Realty (DLR) signed 225 MW of new leases last year. We'll publish our updated Data Center REIT report later this evening on The REIT Forum, analyzing recent quarterly earnings.

Cannabis: Small-cap Power REIT (PW) gained 8% today after reporting Q2 earnings results, noting that its growth trajectory continued with its Core FFO rising 76% from last year. Through the first half of 2021 PW added 8 properties to its cannabis portfolio comprising a total of 317,000 square feet which should generate straight-line annualized rent of approximately $4.6 million. Last week, Innovative Industrial (IIPR) rallied after reporting another strong quarter, noting that its AFFO/share rose nearly 40% year-over-year. 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.


Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.8% today after ending last week roughly flat. Commercial mREITs were lower by 0.3% today following gains of 1.2% last week. We'll hear results this afternoon from Broadmark Realty (BRMK), Granite Point Mortgage (GPMT), Cherry Hill Mortgage (CHMI), and Lument Financial (LFT).

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.25% today, on average, but outperformed their respective common stock issues by an average of 0.26%. So far in 2021, REIT Preferred stocks are higher by 8.69% on a price return basis. The average REIT preferred pays a current yield of 6.03% and trades at a slight premium to par value.

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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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