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  • Alex Pettee, CFA

Rebound Rally • Producer Prices Spike • REIT Dividend Boost

Summary

  • U.S. equity markets rebounded Thursday after employment data showed an encouraging decline in jobless claims, offsetting data showing the fastest annual increase in producer prices on record.

  • Bouncing back from its worst three-day decline since November, the S&P 500 finished higher by 1.2% today while the Mid-Cap 400 gained 2.0% and the Small-Cap 600 jumped 2.4%.

  • Led by residential REITs, real estate equities were broadly higher as the Equity REIT Index gained 1.3% with 18 of 19 property sectors in positive territory. Mortgage REITs rallied 3.1%.

  • The Producer Price Index surged 6.2% for the 12 months ending in April, the fastest increase since the agency began tracking the data in 2010. CPI data yesterday showed the fastest rise in prices since 2008.

  • Worries over commodity shortages and inflation were calmed a bit on news that the Colonial Pipeline has begun restarting operations following a cyberattack that forced it to shut its largest East Coast pipeline.

Real Estate Daily Recap

U.S. equity markets rebounded Thursday after employment data showed an encouraging decline in jobless claims to the lowest levels since last March, offsetting data showing the fastest annual increase in producer prices on record. Bouncing back from its worst three-day decline since November, the S&P 500 (SPY) finished higher by 1.2% today while the Mid-Cap 400 (MDY) gained 2.0% and the Small-Cap 600 (SLY) jumped 2.4%. Led by residential REITs, real estate equities were broadly higher as the Equity REIT Index gained 1.3% with 18 of 19 property sectors in positive territory while Mortgage REITs rallied 3.1%.

Worries over commodity shortages and inflation were calmed a bit on news that the Colonial Pipeline has begun restarting operations following a cyberattack that forced it to shut its largest East Coast pipeline. Ten of the eleven GICS equity sectors finished higher on the day, led to the upside by the Utilities (XLU), Industrials (XLI), and Financials (XLF) sectors. Homebuilders and the broader Hoya Capital Housing Index posted strong gains as well today as investors appeared to seize on this week's pullback in several of the red-hot homebuilders and home building products suppliers.

One day after the BLS reported that consumer prices rose at the fastest rate in more than a decade last month, it reported that the Producer Price Index surged 6.2% for the 12 months ending in April, the fastest increase since the agency began tracking the data in 2010. Core PPI - which excludes foods, energy and trade services - rose 0.7% in April from the previous month, bringing the annual increase to 4.2%. Unprecedented levels of fiscal stimulus - much of it untargeted - have combined with surging demand, and have further clashed with supply constraints to drive a surge in prices and emerging shortages of goods and labor across many industries.

Commercial Equity REITs

Shopping Centers: Kite Realty (KRG) jumped 1.6% today after it boosted its dividend for the second time this year, declaring a $0.18/share quarterly dividend, a 5.9% increase from its prior dividend of $0.17. Earlier in the week, Site Centers (SITC) declared a $0.12/share quarterly dividend, a 9% increase from prior dividend of $0.11 and its second increase this year. In all, 53 equity REITs and 18 mortgage REITs have increased their dividend this year which is higher than the full-year total for 2020. Last week, we published our REIT Earnings Halftime Report. The major themes this quarter have been "Beat and Boost" and the revival of long-dormant "Animal Spirits." Roughly 85% of REITs topped consensus earnings estimates.

Data Centers: Yesterday, we published Data Center REITs: Tech Trouble. Data Center REITs - in synchrony with the broader technology sector - have woefully underperformed their more cyclical and value-oriented counterparts since late 2020 amid an ongoing "Reopening Rotation." Fundamentals were remarkably unaffected by the pandemic, but that's precisely the issue. The worst-performing major REIT sector this year, these REITs are 10-20% below their recent highs set last summer. While cloud spending continues to boom, it is increasingly concentrated in a smaller number of providers - Amazon, Microsoft, and Google. With muted pricing power, REITs must rely on development and M&A to fuel growth.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 2.6% today but remain lower by 3.2% on the week. Commercial mREITs finished higher by 2.2% but remain lower by 4.3% this week. On a slow day of newsflow, Arbor Realty (ABR), AG Mortgage (MITT), and Cherry Hill (CHMI) led to the upside today with gains of more than 5% while NexPoint Real Estate (NREF) was a laggard.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.75% today, on average, but outperformed their respective common stock issues by an average of 2.35%. Yesterday, Sunstone Hotels (SHO) priced 4 million shares of its 6.125% Series H Cumulative Redeemable Preferred Stock for gross proceeds of $100 million and intends to use the net proceeds to fund the redemption of all or a portion of the Company's outstanding 6.950% Series E (SHO.PE) Preferred Stock. This afternoon, Pebblebrook Hotels (PEB) announced it closed its previously announced underwritten public offering of its 6.375% Series G Cumulative Redeemable Preferred Shares for net proceeds of approximately $222 million.



Economic Data This Week

On Friday, we'll see the Retail Sales report for April which is expected to climb to new record-highs following the stimulus-aided surge in March. We'll also be watching for shifts in inflation expectations and consumer confidence on Friday in the Survey of Consumers. 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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