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  • Alex Pettee, CFA

Mall Trouble • Stocks Gain • Jobless Claims Retreat

Summary

  • U.S. equity markets finished mostly higher Thursday after jobless claims retreated to the lowest level since last March while inflation concerns eased as public support for additional government spending wanes.

  • Maintaining its week-to-date gains of 1.0%, the S&P 500 finished higher by 0.1% today while the Mid-Cap 400 gained 0.6% and the Small-Cap 600 rallied 1.2%.

  • Real estate equities were mixed today as the Equity REIT Index finished lower by 0.2% with 9-of-19 property sectors in positive territory while the Mortgage REIT Index gained 0.1%.

  • Initial Jobless Claims retreated for the third-straight week, an encouraging trend that suggests that the disappointing April jobs that sparked concerns of debilitating labor shortages may have been more "noise than signal."

  • Troubled mall REIT Washington Prime Group (WPG) finished lower by about 4% today after negotiating another forbearance extension from its lenders - the seventh such extension - as it seeks to avoid bankruptcy.

Real Estate Daily Recap

U.S. equity markets finished mostly higher Thursday after jobless claims retreated to the lowest level since last March while inflation concerns eased as public support for additional government spending wanes. Maintaining its week-to-date gains of 1.0%, the S&P 500 (SPY) finished higher by 0.1% today while the Mid-Cap 400 (MDY) gained 0.6% and the Small-Cap 600 (SLY) rallied 1.2%. Real estate equities were mixed today as the Equity REIT Index finished lower by 0.2% with 9 of 19 property sectors in positive territory while the Mortgage REIT Index gained 0.1%.

Initial Jobless Claims retreated for the third-straight week, an encouraging trend that suggests that the disappointing April jobs that sparked concerns of debilitating labor shortages may have been more "noise than signal." The so-called "meme-stocks" lit up again today as AMC Entertainment (AMC) surged another 36% and has nearly doubled over the past month. Six of the eleven GICS equity sectors were higher on the day led to the upside by the Industrials (XLI) and Financials (XLF) sectors while homebuilders and the broader Hoya Capital Housing Index extended their gains following strong earnings from home furnishings components Tempur Sealy (TPX).

Commercial Equity REITs

Net Lease: As discussed in our Net Lease REIT report published today, it's back to "business as usual" for net lease REITs, which endured punishing declines early in the pandemic before ultimately exhibiting impressive resilience in the face of stiff macroeconomic headwinds. Acquisition-fueled growth - the "bread and butter" of the sector - has kicked back into gear, underscored by Realty Income's massive acquisition of VEREIT, as the "animal spirits" come alive. Earnings results and commentary were refreshingly "normal" as these REITs are again on the offensive. Net lease REITs - which are 7% of the Real Estate Index - accounted for 35% of total REIT net acquisitions.


Earlier this week, we published our quarterly State of the REIT Sector. REITs recorded a sequential improvement across all critical metrics in Q1, powering a historic wave of dividend growth in early 2021. The Equity REIT Index has fully-recovered their pandemic declines on a total return basis, but several harder-hit property sectors are far from fully-recovered. REITs' strong balance sheets and access-to-capital prevented the type of shareholder dilution that resulted in a "lost decade" for REITs from the GFC. REITs are no longer "cheap," but that may be a good thing as premium valuations in the public markets have revived the "animal spirits" with a wave of M&A and private-to-public acquisitions in early 2021.

Malls: Troubled mall REIT Washington Prime Group (WPG) finished lower by about 4% today after negotiating another forbearance extension from its lenders - the seventh such extension - which brings the new expiration to June 2nd. WPG is seeking to become to the third mall REIT to file for Chapter 11 bankruptcy in the past year following similar actions from CBL Properties (OTCPK:CBLAQ) and Pennsylvania REIT (PEI). As discussed last week in Mall REITs: Fighting For Survival, WPG is teetering on the edge mid "substantial doubt" about its ability to continue as a going concern. Earnings reports revealed that Q1 was another epically bad quarter, particularly for the lower-productivity mall REITs. Occupancy rates declined to fresh record-lows with another 90 basis point decline in Q1 which was 370 basis points from last year to below 90%.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.2% today but remain higher by 0.2% this week. Commercial mREITs finished higher by 0.5% today to push its week-to-date gains to 0.8%. Invesco Mortgage Capital (IVR) dipped 5% after announcing a secondary offering of 37.5M common shares with net proceeds used to redeem the company's 7.75% Series A Preferred Stock (IVR.PA) and for general corporate purposes.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.12% today, on average, but underperformed their respective common stock issues by an average of 0.43%. So far in 2021, REIT Preferred stocks are higher by 7.42% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.09% and trades at a slight premium to par value.

Economic Data This Week

The busy week of economic and housing data continues tomorrow when we'll see the PCE Price Index, the Fed's preferred measure of inflation, as well as Personal Income and Spending data for April. 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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