• Alex Pettee, CFA

REITs Rebound • Mall Dividend Boost • Week Ahead

Summary

  • U.S. equity markets bounced back Monday following their worst week since February ahead of a busy week of economic data and closely-watched commentary from Federal Reserve officials.

  • Snapping a four-day losing streak, the S&P 500 (SPY) finished higher by 1.4% today while the Mid-Cap 400 (MDY) rallied 2.4% and the Small-Cap 600 (SLY) gained 2.3%.

  • Real estate equities were among the leaders today as the Equity REIT Index finished higher by 2.1% with all 19 property sectors in positive territory while Mortgage REITs gained 2.3%.

  • The wave of REIT dividend boost continued following eight increases last week as mall REIT Simon Property (SPG) rallied more than 4% after it declared a $1.40/share quarterly dividend, a 7.7% increase from its prior dividend of $1.30.

  • Micro-cap REIT Condor Hospitality Trust (CDOR) jumped more than 10% after announcing that it is "evaluating strategic alternatives to enhance shareholder value." CDOR reported the strongest occupancy rate of any hotel REIT in Q1.

Real Estate Daily Recap

U.S. equity markets bounced-back Monday following their worst week since February ahead of a busy week of economic data and closely-watched commentary from Federal Reserve officials. Snapping a four-day losing streak, the S&P 500 (SPY) finished higher by 1.4% today while the Mid-Cap 400 (MDY) rallied 2.4% and the Small-Cap 600 (SLY) gained 2.3%. Real estate equities were among the leaders today as the Equity REIT Index finished higher by 2.1% with all 19 property sectors in positive territory while the Mortgage REIT Index gained 2.3%.

As discussed in our Real Estate Weekly Outlook, investors were rattled by the Federal Reserve's updated policy outlook last week, expressing a view of lower economic growth and inflation expectations. The 10-Year Treasury Yield briefly dipped below 1.45% early in the session amid a continued bid for long-term Treasuries but ultimately closed higher by 3 basis points. All 11 GICS equity sectors were higher today, led to the upside by the economically-sensitive Energy (XLE), Financials (XLF), and Industrials (XLI) sectors. A strong day from residential REITs led the Hoya Capital Housing Index to gains ahead of a busy slate of economic and housing data in the week ahead.

The busy economic calendar kicks off tomorrow with Existing Home Sales and continues on Wednesday with New Home Sales for May which are each expected to show that home buying activity has moderated slightly from historically strong levels earlier this year from the combination of supply constraints and soaring prices. On Friday, we'll see inflation data with the PCE Price Index - the Fed's "preferred" gauge of inflation - which is expected to show that prices are rising at the fastest level in at least a decade. We'll also see Personal Income & Spending data on Friday and a flurry of PMI and sentiment data throughout the week.

Commercial Equity REITs

The wave of REIT dividend boost continued following eight increases last week as mall REIT Simon Property (SPG) rallied more than 4% after it declared a $1.40/share quarterly dividend, a 7.7% increase from its prior dividend of $1.30, but still below its pre-pandemic dividend rate of $2.10/share. 64 equity REITs have now raised their dividend this year, the majority of which have come from REITs that also boosted their payouts in 2020.

Cell Tower: Today, we published a new report on the Cell Tower sector on The REIT Forum. Cell Tower REITs - American Tower (AMT), Crown Castle (CCI), and SBA Communications (SBAC) - are again pulling their weight after uncharacteristically lagging earlier this year, catalyzed by strong first quarter earnings and major M&A developments. AT&T (T) and Verizon ended their tumultuous foray into the media business this year, divesting their capital-draining ancillary businesses as competition has heated-up with T-Mobile and Dish Network. While no longer cheap, Cell Tower REITs should remain a growth engine of the real estate sector, particularly as the newly recapitalized carriers go "all-in" on 5G network build-outs.

Hotels: Micro-cap REIT Condor Hospitality Trust (CDOR) jumped more than 10% after announcing that it is "evaluating strategic alternatives to enhance shareholder value" and has engaged the firm of Hodges Ward Elliott to market for sale the 15 hotels portfolio owned by the company. Of the 18 hotel REITs, CDOR - which focuses on the "select service" hotel segment in the Southeast region - reported the strongest occupancy rate in Q1. TSA Checkpoint data showed that domestic travel - which bottomed last April at less than 5% of pre-pandemic levels - has recovered to around 75% of pre-pandemic levels.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.9% today following declines of 3.5% last week. Commercial mREITs gained 2.1% today after ending last week with declines of 3.0%. On a slow day of newsflow in the mREIT space, Sachem Capital (SACH), MFA Financial (MFA), and AG Mortgage (MITT) led the gains while Hannon Armstrong (HASI) was the laggard.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.10% today, on average, but underperformed their respective common stock issues by an average of 1.90%. So far in 2021, REIT Preferred stocks are higher by 9.26% on a price return basis. The average REIT preferred currently pays a dividend yield of 5.97% and trades at a slight premium to par value. After the close last Friday, Public Storage (PSA) announced that it will redeem its 4.95% Series D Preferred (PSA.PD) on July 20, 2021. Gladstone Commercial (GOOD) announced this morning that it will issue a new Series G Preferred and use the proceeds to optionally redeem all of its 7.00% Series D Preferred (GOOD.PD).

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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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