• Alex Pettee, CFA

Job Openings • REIT Dividend Hike • Supply Chain Woes

Summary

  • U.S. equity markets declined Wednesday as COVID concerns again weighed on sentiment while fresh data showed that there were a record-setting 10.9 million job openings in the U.S. in July.

  • Declining for the third straight session, the S&P 500 finished lower by another 0.2% today while the Mid-Cap 400 slipped 0.4% and the Small-Cap 600 declined 1.1%.

  • Led by residential REITs, real estate equities were outperformers today as the Equity REIT Index gained 0.5% today with 13 of 19 property sectors in positive territory.

  • Billboard REIT Lamar Advertising (LAMR) boosted its dividend for the second time this year, bringing it back to its pre-pandemic rate. LAMR is one of 101 REITs that have raised their dividends this year.

  • Data Center REIT DigitalBridge (DBRG) announced a deal to sell its last remain legacy healthcare real estate assets in a transaction valued at $3.2B, representing the final step in the company’s "digital transformation."

Real Estate Daily Recap

U.S. equity markets declined Wednesday as COVID concerns again weighed on sentiment while fresh data showed that there were a record-setting 10.9 million job openings in the U.S. in July. Declining for the third-straight session, the S&P 500 finished lower by another 0.2% today while the Mid-Cap 400 slipped 0.4% and the Small-Cap 600 declined 1.1%. Led by residential REITs, real estate equities were outperformers today as the Equity REIT Index gained 0.5% today with 13 of 19 property sectors in positive territory while Mortgage REITs slipped 0.7%.

Supply chain concerns have been the theme this week as Sherwin Williams (SHW) echoed warnings yesterday from PPG (PPG), noting that "persistent and industry-wide raw material availability issues have not improved as anticipated, impacting our ability to fully meet the strong demand." Meanwhile, JOLTs job openings data this morning showed that there were roughly 2.5 million more job openings in July (10.9M) than Americans currently seeking work (8.4M). Five of the elven GICS equity sectors were higher today, led to the upside by the domestic yield-sensitive sectors including Utilities (XLU) and Real Estate (XLRE) as the 10-Year Treasury Yield retreated by 4 basis points to close at 1.33% today.

Equity REITs

Data Center: DigitalBridge (DBRG) traded slightly lower today after it announced that it reached a deal to sell its last remain legacy healthcare real estate assets to Highgate Capital Investments and Aurora Health Network in a transaction valued at $3.2B, which was roughly in-line with analyst projections. The sale represented the final step in the company’s "digital transformation" in which it sold six non-digital, legacy segments over the past two years and redeployed the capital into data center and cell tower assets. The portfolio consists of 300 facilities across senior housing, skilled nursing, medical office buildings, and hospitals as well as an equity interest in non-traded REIT NorthStar Healthcare Income. The deal, which will significantly enhance DBRG's corporate liquidity, is expected to close in early 2022.

Billboard: Lamar Advertising (LAMR) boosted its dividend for the second time this year, declaring a $1.00/share quarterly dividend, a 33.3% increase from its prior dividend of $0.75, and consistent with its pre-pandemic dividend rate. Lamar reported substantially improving fundamentals in Q2 and boosted its full-year AFFO growth outlook to 21.4%, up from its prior outlook of 7.7%. Lamar noted that billboard revenue for the period surpassed revenue for the comparable quarter in 2019, while bookings in the transit and airport business continued to improve. Lamar is one of 101 REITs that have raised their dividends this year.

Single-Family Rentals: This afternoon, we will publish an updated analysis on the SFR REIT sector in a report on The REIT Forum. Single-Family Rentals are one of the great success stories of the Modern REIT Era, becoming a "core" institutional asset class and quieting the critics that questioned their ability to operate efficiently. The combination of historically low housing supply and strong demographic-driven demand - with added pandemic-driven tailwinds - has sent single-family rents soaring at the fastest rate on record. Wall Street has taken note as institutional operators are scooping up single-family properties at a record pace. With home prices soaring, SFR REITs have become strategic homebuilders to fuel accretive portfolio growth.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.5% today and are now off by 1.4% this week. Commercial mREITs slipped 1.0% today and are now lower by 1.9% this week. On an otherwise slow day of newsflow, residential mREIT Chimera Investment (CIM) announced the closing of two securitizations of residential mortgage loans completed over the last two months with an aggregate principal balance of $885M. The average residential mortgage REIT now pays a dividend yield of 9.0% while the average commercial mortgage REIT pays a dividend yield of 6.8%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.14% today, on average, but outperformed their respective common stock issues by an average of 0.24%. So far in 2021, REIT Preferred stocks are higher by 11.25% on a price return basis. The average REIT preferred pays a current yield of 5.88% and trades at a slight premium to par value. This week, Summit Hotels (INN) completed its previously announced redemption of its 6.45% Series D Preferred (INN.PD) and its 5.875% Series F Preferred (INN.PF).

Economic Calendar This Week

The economic calendar slows down in the holiday-shortened week ahead with Labor Day on Monday. On Wednesday, we saw JOLTs Job Openings data for July, which showed that the quantity of available jobs - nearly 10.9M - is higher than the total quantity of unemployed Americans currently seeking work - 8.4M. On Friday, we'll see some inflation data with the Producer Price Index for August, which is expected to show an 8.3% year-over-year rise as cost pressures continue to accelerate further from the record-highs set in the prior month. Investors will also be listening to Federal Reserve commentary from Fed Members Daly and Williams on Thursday.

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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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