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  • Alex Pettee, CFA

Rents Rise • REIT Dividend Boosts • Inflation Data

Summary

  • U.S. equity markets finished mostly higher Friday - snapping a two-week losing streak - after PCE inflation data roughly matched estimates, helping to further calm market jitters about rising rates.

  • Ending the week with gains of 1.2%, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 gained 0.1% while the Small-Cap 600 declined by 0.4%.

  • Real estate equities were among the leaders today as the Equity REIT Index finished higher by 0.6% with 18-of-19 property sectors in positive territory while Mortgage REITs gained 0.4%.

  • Residential REITs led the way after data from Apartment List showed that rents jumped in May, with national annual rent growth now averaging 5.4% following the third straight month of record-setting rent growth.

  • Three more equity REITs boosted their dividends over the last 24 hours, bringing the full-year total to 56 - American Tower (AMT), National Storage (NSA), and Retail Properties of America (RPAI).

Real Estate Daily Recap

U.S. equity markets finished mostly higher Friday - snapping a two-week losing streak - after PCE inflation data roughly matched estimates, helping to further calm market jitters about rising rates. Ending the week with gains of 1.2%, the S&P 500 (SPY) finished higher by 0.2% today while the Mid-Cap 400 (MDY) gained 0.1% while the Small-Cap 600 (SLY) declined by 0.4%. Real estate equities were among the leaders today as the Equity REIT Index finished higher by 0.6% with 18 of 19 property sectors in positive territory while the Mortgage REIT Index gained 0.4%.

Six of the eleven GICS equity sectors finished higher on the day, led to the upside by the more yield-sensitive segments of the equity market including Real Estate (XLRE) and Utilities (XLU). Residential REITs led the broader Hoya Capital Housing Index to gains today after data from Apartment List showed that rents jumped in May, with national annual rent growth now averaging 5.4% following the third straight month of record-setting rent growth.

The Personal Consumption Expenditure index - the Fed's "preferred" inflation gauge - showed that core consumer prices rose at a 3.1% annualized rate in April, roughly in line with market expectations. 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

Three more equity REITs boosted their dividends over the last 24 hours, bringing the full-year total to 56. American Tower (AMT) boosted its dividend for the second time this year, declared a $1.27/share quarterly dividend, a 2.4% increase from its prior dividend of $1.24. National Storage (NSA) declared a $0.38/share quarterly dividend, a 8.6% increase from its prior dividend of $0.35. Retail Properties of America (RPAI) declared a $0.075/share quarterly dividend, a 7.1% increase from its prior dividend of $0.07, but still below its pre-pandemic rate of $0.17.

Yesterday, we published Net Lease REITs: Back to Business. It's back to "business as usual" for net lease REITs, which endured punishing declines early in the pandemic before ultimately exhibiting impressive resilience in the face of stiff macroeconomic headwinds. Acquisition-fueled growth - the "bread and butter" of the sector - has kicked back into gear, underscored by Realty Income's massive acquisition of VEREIT, as the "animal spirits" come alive. Earnings results and commentary were refreshingly "normal" as these REITs are again on the offensive. Net lease REITs - which are 7% of the Real Estate Index - accounted for 35% of total REIT net acquisitions.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.3% today to end the week with gains of 0.6%. Commercial mREITs gained 0.1% today to end the week higher by 0.1%. On a slow day of newsflow ahead of the long weekend, PennyMac Mortgage (PMT) and Ready Capital (RC) led to the upside while Ladder Capital (LADR) and Hannon Armstrong (HASI) were laggards.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.59% today, on average, and outperformed their respective common stock issues by an average of 0.02%. So far in 2021, REIT Preferred stocks are higher by 7.79% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.08% and trades at a slight premium to par value.

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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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