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  • Alex Pettee, CFA

REITweek Updates • Yields Retreat • Apartment Rents Jump

Summary

  • U.S. equity markets finished mostly higher Tuesday as interest rates and inflation expectations pulled back to the lowest levels since March ahead of the closely-watched CPI report on Thursday.

  • Following a decline of 0.1% yesterday, the S&P 500 finished fractionally higher today while the Mid-Cap 400 gained 1.0% and the Small-Cap 600 rallied 1.1%.

  • Real estate equities continued their recent outperformance following a busy slate of REITweek updates. The Equity REIT Index finished higher by 0.8% with 15-of-19 property sectors in positive territory.

  • We heard updates from most of the apartment REIT sector over the last 24 hours which showed a dramatic acceleration in multifamily rents over the last two months.

  • Amid all the REITweek newsflow, we also heard fiscal Q2 earnings results from shopping center REIT Urstadt Biddle (UBA), which gained nearly 4% after reporting that same-store NOI rose 13.3% from the same quarter last year.

Real Estate Daily Recap

U.S. equity markets finished mostly higher Tuesday as interest rates and inflation expectations pulled back to the lowest levels since March ahead of the closely-watched CPI report on Thursday. Following a decline of 0.1% yesterday, the S&P 500 (SPY) finished fractionally higher today while the Mid-Cap 400 (MDY) gained 1.0% and the Small-Cap 600 (SLY) rallied 1.1%. Real estate equities continued their recent outperformance following a busy slate of REITweek updates as the Equity REIT Index finished higher by 0.8% today with 15 of 19 property sectors in positive territory while the Mortgage REIT Index gained 1.4%.

Meme-stocks again dominated the headlines today as Wendy's (WEN) and Clover Health (CLOV) were today's targets of retail and hedge-fund-driven speculative trading activity. Investors have also piled into U.S. government bonds in recent weeks as concerns over inflation ease. The 10-Year Treasury Yield retreated another 7 basis points today to close at 1.53%, the lowest close since early March. Six of the eleven GICS equity sectors finished higher on the day, led to the upside by the Energy (XLE) sector while residential REITs again powered the Hoya Capital Housing Index to gains following another strong slate of REITweek updates.

Commercial Equity REITs

Single Family Rentals: As discussed today in PropTech Revolution, the positive reverberations from the post-pandemic "housing boom" are now being felt across U.S. rental markets as single-family housing rents are suddenly soaring at the fastest rate on record. Riding the rental revival, Single-Family Rental REITs are the single-best performing property sector since the end of 2019. Following a positive update yesterday from Invitation Homes, American Homes (AMH) noted today in its REITweek update that it achieved rent growth of 12.7% on new leases and 5.3% on renewals for a blended rate of 7.6%. AMH also boosted its acquisition guidance and now expects to deploy $1.4B-$1.8B in total capital through its various external growth channels.

Apartments: We heard updates from most of the apartment REIT sector over the last 24 hours which showed a dramatic acceleration in multifamily rents over the last two months. Double-digit rates of rent growth are now commonplace across not only the red-hot sunbelt and suburban markets, but also the previously troubled urban markets. Coastal-focused Equity Residential (EQR) noted that it has seen rents rise 17% from December 2020 to May 2021. Among sunbelt-focused REITs, NexPoint Residential (NXRT) reported that blended rents rose 9.8% in May while Camden Property (CPT) reported 7.7% growth in May and Centerspace (CSR) saw blended rent growth of 7.0%, all of which were among the strongest months on record.

Shopping Center: Amid all the REITweek newsflow, we also heard fiscal Q2 earnings results from shopping center REIT Urstadt Biddle (UBA), which gained more than 4% after reporting that same-store NOI rose 13.3% from the same quarter last year. UBA reported that it collected roughly 93% of rents in Q1. Last week, UBA boosted its quarterly dividend to $0.207/share, up from its prior $0.14 rate. We analyzed recent Q1 results across the shopping center REIT sector last week in The New Hub of E-Commerce?

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.8% today and are now higher by 3.5% this week. Commercial mREITs were higher by 1.6% today and are now higher by 4.0% on the week. TPG RE Finance (TRTX) priced its new 6.25% Series C Cumulative Redeemable Preferred Stock (TRTX.PC) and plans to use the proceeds to partially fund the redemption of all of the outstanding shares of the Company’s Series B Cumulative Redeemable Preferred Stock.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.12% today, on average, but underperformed their respective common stock issues by an average of 2.07%. So far in 2021, REIT Preferred stocks are higher by 9.56% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.05% and trades at a slight premium to par value. Public Storage (PSA) priced its 4.000% Series P Preferred (PSA.PP) and concurrently completed the redemption of its 5.125% Series C Preferred (PSA.PC). American Homes (AMH) also completed the previously-announced redemption of its 6.5% Series D Preferred (AMH.PD).

Economic Data This Week

The economic calendar slows down in the week ahead after several busy weeks, headlined by Consumer Price Index ("CPI") data on Thursday. 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. We'll also be watching Jobless Claims data on Thursday and Consumer Confidence data on Friday.


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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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