Alex Pettee, CFA
Job Growth Disappoints • Yields Retreat • Stocks Rally
U.S. equity markets finished higher Friday as concerns about "overheating" cooled after employment data showed that job growth fell short of expectations for the second-straight month.
Finishing the week with cumulative gains of 0.6%, the S&P 500 gained 0.9% today while the Mid-Cap 400 gained 0.6% and the Small-Cap 600 finished higher by 0.2%.
Real estate equities were laggards today on an otherwise strong week as the Equity REIT Index finished higher by 0.1% with 9-of-19 property sectors in positive territory.
The Bureau of Labor Statistics reported this morning that the U.S. economy added just 559k jobs in May - an improvement from the disappointing 266k added in April - but again below the consensus estimates of 650k.
The mildly disappointing employment data pulled the 10-Year Treasury Yield down by 7 basis points on the day, closing the week at 1.56%, the lowest end-of-week close since early March.
Real Estate Daily Recap
U.S. equity markets finished higher Friday as concerns about "overheating" cooled after employment data showed that job growth fell short of expectations for the second-straight month. Finishing the week with cumulative gains of 0.6%, the S&P 500 (SPY) gained 0.9% today while the Mid-Cap 400 (MDY) gained 0.6% and the Small-Cap 600 (SLY) finished higher by 0.2%. Real estate equities were laggards today on an otherwise strong week as the Equity REIT Index finished higher by 0.1% with 9 of 19 property sectors in positive territory while the Mortgage REIT Index gained by 0.6%.
The mildly disappointing employment data pulled the 10-Year Treasury Yield down by 7 basis points on the day, closing the week at 1.56%, the lowest end-of-week close since early March. Ten of the eleven GICS equity sectors finished higher on the day, led to the upside by the Technology (XLK) and Communications (XLC) 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.
The Bureau of Labor Statistics reported this morning that the U.S. economy added just 559k jobs in May - an improvement from the disappointing 266k added in April - but again below the consensus estimates of 650k. The two months of disappointing jobs data - which have come despite record high numbers of job openings - provided evidence that companies are having difficulty hiring both skilled and unskilled workers which some economists suggest is linked to supplemental pandemic-related unemployment benefits which - in some cases - result in higher pay than the employment alternative.
Commercial Equity REITs
Shopping Center: Today, we published a report analyzing recent trends in the shopping center sector, The New Hub of E-Commerce? Shopping Center REITs have continued their post-vaccine resurgence into mid-2021, surging another 45% this year and pushing stock prices back near or above pre-pandemic levels. Rent collection has fully "normalized" for most REITs, and recent earnings reports showed that, while occupancy rates remain under pressure, a full earnings recovery could come as soon as 2022. The pandemic accelerated retailers' investment in their in-store order fulfillment platforms. Shopping centers are becoming hybrid distribution centers in a decentralized third-party delivery network powering same-hour delivery.
Healthcare: National Health Investors (NHI) became just the second equity REIT to decrease its dividend this year, declaring a $0.90/share quarterly dividend, a -18.4% decrease from its prior dividend of $1.10, but still representing a healthy forward yield of 5.4%. The company also provided a business update in which it noted that its rent collection - which has lagged other healthcare REITs - improved to 87% in May. The bulk of the missed rent has been due to deferrals granted to troubled operators including Bickford Senior Living and Holiday. Despite its rent collection troubles, NHI was the only senior housing-focused REIT to record positive FFO growth last year.
Hotels: In a business and operations update, Xenia Hotels (XHR) provided a business update in which it noted that its occupancy rate improved to 50% in May, up slightly from 48.9% in April. The company expects "continued strong leisure business throughout the summer" and sees a "meaningful improvement from the corporate and group segments this fall." TSA Checkpoint data has shown a slow but steady recovery in air travel since the bottom last April at less than 5% of pre-pandemic levels. Earlier this month, hotel data provider STR upgraded its outlook for the U.S. hotel industry, citing a strong occupancy rebound in Q1, but still projects that the full demand recovery won't come until 2023 as "transient business, group and international travel face continued headwinds, and a full recovery will take several years."
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.6% today to end the week with gains of 1.4%. Commercial mREITs were higher by 0.4%, pushing their weekly gains to 2.0%. Ready Capital (RC) finished higher by about 1% after it priced its offering of 4M shares of its 6.50% Series E Preferred, raising gross proceeds of $100M, which it intends to redeem its 8.625% Series B Preferred (RC.PD) and its 7.625% Series D Preferred Stock (RC.PD).
REIT Preferreds & Capital Raising
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.18% today, on average, but underperformed their respective common stock issues by an average of 0.39%. So far in 2021, REIT Preferred stocks are higher by 8.97% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.07% 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.