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  • Alex Pettee, CFA

REITs Lead On Choppy Week

Summary

  • U.S. equity markets rebounded with strong gains Friday with the benchmark averages closing the week at fresh record-highs on a choppy week amid renewed concerns over the spread of COVID variants.

  • Bouncing back from broad declines yesterday to end the week with modest gains, the S&P 500 finished higher by 1.1% today while Mid-Caps gained 2.1% and Small-Caps rallied 2.5%.

  • Real estate equities were among the leaders today and on the week. The Equity REIT Index gained 1.6% with all 19 property sectors in positive-territory while Mortgage REITs gained 3.0%.

  • Industrial REIT Terreno Realty (TRNO) gained nearly 2% after providing preliminary Q2 statistics, reporting 97.5% occupancy, up from 96.1% and 21.1% higher cash rents on new and renewed leases.

  • 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.

Real Estate Daily Recap

U.S. equity markets rebounded with strong gains Friday with the benchmark averages closing the week at fresh record-highs on a choppy week amid renewed concerns over the spread of COVID variants. Bouncing back from broad declines yesterday to end the week with modest gains, the S&P 500 finished higher by 1.1% today while the Mid-Cap 400 gained 2.1% and the Small-Cap 600 rallied 2.5%. Real estate equities were among the leaders today and on the week as the Equity REIT Index gained 1.6% with all19 property sectors in positive territory while the Mortgage REIT Index rallied 3.0%.

After dipping as low as 1.25% yesterday, the 10-Year Treasury Yield closed the week at 1.36%, its lowest end-of-week close since mid-February. All eleven GICS equity sectors finished higher on the day, led to the upside by the Financials (XLF), Energy (XLE), and Materials (XLB) sectors while residential REITs led the Hoya Capital Housing Index to strong gains as well. 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.

Commercial Equity REITs

Industrial: Terreno Realty (TRNO) gained nearly 2% after providing preliminary Q2 statistics in which it noted that its portfolio is now 97.5% leased, up from 96.1% in the prior period. Cash rents on new and renewed leases increased 21.1% with a tenant retention ratio of 64.3% in Q2. Terreno noted that it acquired six properties and three improved land parcels in Q2 for an aggregate purchase price of $54.2M and it has $146.6M of acquisitions under contract. The "hub of e-commerce" and the hottest property sector of the last half-decade, industrial REITs recorded the strongest earnings and dividend growth of any real estate sector in 2020.

Healthcare: Yesterday, we published Healthcare REITs: Vaccine Revival. Left for dead early in the pandemic, the prognosis for Healthcare REITs has improved dramatically over the several quarters as coronavirus cases have been all-but-eradicated in U.S. senior housing facilities. Senior Housing REITs - the hardest-hit sub-sector - have led the recovery as occupancy rates appear to have bottomed in early 2021, benefiting from the red-hot and undersupplied housing market. While HealthPeak (PEAK) has completed its exit from the senior housing sector to focus on medical office and lab space, Welltower (WELL) and Ventas (VTR) are doubling-down with major senior housing portfolio acquisitions last month.

Cannabis: Earlier this week, we published Cannabis REITs: High On Growth. Cannabis REITs are riding a seemingly never-ending 'high' since bursting onto the scene in the late 2010s, thriving in the murky and often contradictory regulatory framework of legalized marijuana. While still early in the evolution of the industry, we see emerging parallels with the casino industry where REITs have carved out a profitable and attractive niche with a sustainable competitive advantage. Roughly two-thirds of the U.S. population now support marijuana legalization, up from roughly 15% in the 1970s and 35% in the early 2000s while roughly 1-in-8 Americans consume cannabis regularly.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 3.2% today but still ended the week with declines of 0.5%. Commercial mREITs rallied 3.1% today to close the week with gains of 0.2%. Yesterday afternoon, Ellington Financial (EFC) declared a $0.15/share monthly dividend, in line with its previous rate, representing a forward yield of roughly 10.0%. AGNC Investment (AGNC) declared a $0.12/share monthly dividend, also in line with its previous rate, representing a forward yield of roughly 8.7%.

REIT Preferreds & Capital Raising

Over in the bond markets, Realty Income (O) priced its debut green bond offering, a public offering of £400M of 1.125% senior unsecured notes due July 13, 2027 and £350M of 1.750% senior unsecured notes due July 13, 2033. Retail Properties of America (RPAI) closed on an amended and extended $850M (from $750M) unsecured revolving line of credit with a January 2026 maturity. STAG Industrial (STAG) priced $275M of 2.80% notes maturing September 2031 and $50M of 2.95% notes maturing September 2033.


Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks higher lower by 0.30% today, on average, but underperformed their respective common stock issues by an average of 2.23%. So far in 2021, REIT Preferred stocks are higher by 9.70% on a price return basis. The average REIT preferred pays a current yield of 5.94% and trades at a slight premium to par value.

Economic Data This Week

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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