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  • Alex Pettee, CFA

REITs Lead • Soaring Rents • Inflation Week

Summary

  • U.S. equity markets finished broadly higher with the major averages setting fresh record-highs ahead of a busy week of inflation data and the start of second-quarter corporate earnings season.

  • Following gains of 0.4% last week, the S&P 500 finished higher by 0.4% today while the Mid-Cap 400 gained 0.3% and the Small-Cap 600 climbed 0.5%.

  • Real estate equities - the best performing asset class this year - were again among the leaders today as the Equity REIT Index gained 0.9% with all 18-of-19 property sectors higher.

  • The Washington Post published a column on soaring rent growth across the country, citing data last week from Apartment.com which noted that rents have risen 7.5% nationally since the start of the year and more than 25% in many of the hottest markets.

  • The busy week of economic data kicks off tomorrow with CPI Inflation data and continues on Wednesday with the Producer Price Index. On Friday, we'll see Retail Sales data for June and Consumer Sentiment.

Real Estate Daily Recap

U.S. equity markets finished broadly higher with the major averages setting fresh record-highs ahead of a busy week of inflation data and the start of second-quarter corporate earnings season. Following gains of 0.4% last week, the S&P 500 finished higher by 0.4% today while the Mid-Cap 400 gained 0.3% and the Small-Cap 600 climbed 0.5%. Real estate equities - the best performing asset class this year - were again among the leaders today as the Equity REIT Index gained 0.9% with all 18-of-19 property sectors in positive territory while the Mortgage REIT Index gained 0.5%.

As discussed in our Real Estate Weekly Outlook, COVID concerns have crept back into the market consciousness over the lats two weeks, pressuring global sovereign yields, but the 10-Year Treasury Yield managed to bounce back today amid a busy week of note auctions. Nine of the eleven GICS equity sectors finished higher on the day, led to the upside by Financials (XLF) and Real Estate (XLRE), and Communications (XLC). Residential REITs led the Hoya Capital Housing Index to strong gains as well on additional data showing a historic surge in rent growth through the first half of this year.

We'll see a jam-packed slate of economic data and the start of second-quarter earnings season in the week ahead, headlined by inflation and retail sales data. On Tuesday and Wednesday, respectively, we'll see Consumer Price Index ("CPI") and Producer Price Index ("PPI") data for June. The BLS reported last month that consumer and producer prices each recorded the largest annual increases in more than a decade. On Friday, we'll see Retail Sales data for June which is expected to show a continued cool down from the stimulus-fueled record-highs set in April. We'll also be watching Jobless Claims data on Thursday and Consumer Sentiment data on Friday.

Commercial Equity REITs

Apartments: The Washington Post published a column on soaring rent growth across the country, citing data last week from Apartment.com which noted that rents have risen 7.5% nationally since the start of the year and more than 25% in many of the hottest markets. A trend that we've discussed in Inflation Is Worse Than It Looks, the Washington Post concluded, "analysts expect rent prices to keep climbing for the foreseeable future, a major burden for renters and a warning sign that higher inflation could linger far longer than the White House and Federal Reserve keep predicting."

Industrial: Real estate data firm CBRE (CBRE) published a report on the red-hot industrial sector, noting that market rents are showing no signs of slowing down with record-high rents, record-low vacancy rates, and 44 consecutive quarters of positive net absorption. CBRE noted that nearly 100 million sq. ft. was absorbed in Q1, the third highest mark on record, lowing the overall availability rate by 30 basis points (bps) to 7.0%, the lowest since Q1 2019. Asking rents rose in Q1 to a record $8.44 per sq. ft., 2.2% higher than in Q4 and 7.1% higher than a year ago. This afternoon, we'll publish an updated report on Industrial REITs on The REIT Forum.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.2% today following declines of 0.5% last week. Commercial mREITs gained 1.1% today after gaining 0.2% last week. AG Mortgage Investment Trust (MITT) dipped more than 4% after announcing a 1-for-3 reverse stock split of the company’s common stock, expected to become effective following the close of business on July 22. MITT - which was perhaps the single hardest-hit mortgage REIT by the pandemic - briefly traded as low as $2/share last March and despite gains of nearly 50% this year, it remains more than 70% below its pre-pandemic level.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks higher lower by 0.01% today, on average, and underperformed their respective common stock issues by an average of 0.56%. So far in 2021, REIT Preferred stocks are higher by 9.61% 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. Over in the bond markets, DigitalBridge Group (DBRG) closed on $500m in securitized notes backed by the company's investment management fees.

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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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