• Alex Pettee, CFA

REIT Squeeze • Yields Retreat • REITweek Updates

Summary

  • U.S. equity markets finished modestly lower - trading in a tight range throughout the week - as long-term interest rates pulled back to three-month lows ahead of tomorrow's CPI report.

  • Following fractional gains yesterday, the S&P 500 finished lower by 0.2% today while the Mid-Cap 400 declined by 0.7% and the Small-Cap 600 retreated 0.8%.

  • Real estate equities continued their recent outperformance as the Equity REIT Index finished higher by 0.1% today with 12-of-19 property sectors in positive territory while Mortgage REITs gained 0.7%.

  • REITs have been active participants in "meme mania" over the last month as many of the most troubled and heavily shorted REITs continue to experience extreme price moves driven by retail and hedge-fund-driven speculative trading activity.

  • Five REITs jumped more than 15% today led by prison operators Geo Group and CoreCivic; mall REITs Washington Prime and CBL Properties; and mortgage REIT Invesco Mortgage, all of which are among the top-15 most heavily shorted REITs.

Real Estate Daily Recap

U.S. equity markets finished modestly lower - trading in a tight range throughout the week - as long-term interest rates pulled back to three-month lows ahead of tomorrow's CPI inflation report. Following fractional gains yesterday, the S&P 500 (SPY) finished lower by 0.2% today while the Mid-Cap 400 (MDY) declined by 0.7% and the Small-Cap 600 (SLY) retreated 0.8%. Real estate equities continued their recent outperformance as the Equity REIT Index finished higher by 0.1% today with 12 of 19 property sectors in positive territory while the Mortgage REIT Index gained 0.7%.

Seven of the eleven GICs equity sectors finished lower on the day, dragged to the downside by the Industrial (XLI), Financials (XLF), and Materials (XLB) sectors. The 10-Year Treasury Yield retreated another 4 basis points today to close at 1.49%, the lowest close since early March, as inflationary concerns have calmed in recent weeks. Within the Hoya Capital Housing Index, another strong day from residential REITs wasn't enough to offset a down-day for homebuilders as the red-hot home ownership markets appear to have "passed the torch" to rental markets with rents suddenly soaring at historic rates.

Commercial Equity REITs

As discussed in REITs Getting Short Squeezed, REITs have been active participants in "meme mania" over the last month as many of the most troubled and heavily shorted REITs continue to experience extreme price moves driven by retail and hedge-fund-driven speculative trading activity. Five REITs jumped more than 15% today led by prison operators Geo Group (GEO) and CoreCivic (CXW), mall REITs Washington Prime (WPG), and CBL Properties (OTCPK:CBLAQ), and mortgage REIT Invesco Mortgage (IVR) all of which are among the top-15 most heavily shorted REITs.

Single Family Rentals: Yesterday, we published PropTech Revolution, which discussed how the positive reverberations from the post-pandemic "housing boom" are now being felt across U.S. rental markets as single-family housing rents have soared in early 2021. Quieting the critics that questioned their ability to operate efficiently, SFR REITs have been leaders in using Property Technology (PropTech) to reduce costs, increase renter satisfaction, and fuel accretive growth. While the fast-growing SFR REITs appear pricey compared to other REIT sectors, valuations remain compelling compared to other PropTech disruptors in the housing ecosystem.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.5% today and are now higher by 5.3% this week. Commercial mREITs were higher by 0.2% today and are now higher by 4.2% on the week. Invesco Mortgage (IVR) and Western Asset (WMC) - two of the most heavily shorted mREITs - led the way today. Ladder Capital (LADR) finished higher by about 1.5% today after announcing that S&P upgraded the long-term senior unsecured rating of the Company to BB- from B+ and affirmed the Company’s long-term corporate family rating of BB-. LADR also announced that it plans a private offering of $400M of senior unsecured notes due 2029.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.50% today, on average, but underperformed their respective common stock issues by an average of 1.01%. So far in 2021, REIT Preferred stocks are higher by 10.0% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.04% and trades at a slight premium to par value.

Economic Data This Week

We'll see Consumer Price Index ("CPI") and Jobless Claims data tomorrow. The BLS reported last month that consumer prices recorded the largest annual increase since September 2008 last month as unprecedented levels of fiscal stimulus - much of it untargeted - have combined with surging demand from post-pandemic reopening and with supply constraints to drive a surge in prices. Consensus estimates call for a 3.4% rise in Core CPI and a 4.6% in the overall CPI index, which would each be the highest annual inflation rate in at least fifteen years.

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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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