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  • Alex Pettee, CFA

Stocks Dip • Yields Free-Fall • Shopping Center IPO

Summary

  • U.S. equity markets retreated from record-highs Thursday as ongoing concerns over COVID variants weighed on global economic growth expectations while Treasury Yields continued their recent plunge.

  • Erasing its week-to-date gains, the S&P 500 finished lower by 1.0% today while the Mid-Cap 400 declined 1.4% and the Small-Cap 600 slipped 1.3%.

  • Real estate equities were among the stronger-performers today - led by residential REITs - as the Equity REIT Index declined 0.3% with 14 of 19 property sectors in negative territory.

  • The bid for risk-free sovereign bonds continued today with the 10-Year Treasury Yield declining for the eighth straight day, briefly dipping below 1.25%, a sharp reversal from its recent intra-day peak in late March of 1.75%.

  • Non-traded REIT Phillips Edison & Company (PECO) - which owns nearly 300 shopping centers - plans to pursue an initial public with an implied market capitalization of roughly $3.4B, which would make it the sixth-largest shopping center REIT.

Real Estate Daily Recap

U.S. equity markets retreated from record-highs Thursday as ongoing concerns over COVID variants weighed on global economic growth expectations while Treasury Yields continued their recent plunge. Erasing its week-to-date gains, the S&P 500 finished lower by 1.0% today while the Mid-Cap 400 declined 1.4% and the Small-Cap 600 slipped 1.3%. Real estate equities were among the stronger-performers today - led by residential REITs - as the Equity REIT Index declined 0.3% with 14 of 19 property sectors in negative territory while the Mortgage REIT Index finished lower by 1.5%.

The bid for risk-free sovereign bonds continued today with the 10-Year Treasury Yield declining for the eighth straight day, briefly dipping below 1.25%, a sharp reversal from its recent intra-day peak in late March of 1.75%. All eleven GICS equity sectors were lower on the day, dragged on the downside by the economically sensitive Financials (XLF), Industrials (XLF), and Materials (XLB) sectors while Real Estate (XLRE) led to the upside. Homebuilders dragged the Hoya Capital Housing Index despite Freddie Mac data showing that mortgage rates declined to the lowest level in five months.

Commercial Equity REITs

Shopping Centers: Formerly non-traded REIT Phillips Edison & Company (PECO) plans to pursue an initial public offering of 17 million shares priced at a range of $28 to $31 per share, implying a market capitalization of roughly $3.4B, which would make it the sixth-largest shopping center REIT. PECO is an internally-managed REIT and one of the nation’s largest owners and operators of grocery-anchored shopping centers with a portfolio comprised of 278 wholly-owned shopping centers across 31 states.

Healthcare: Today, 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 has completed its exit from the senior housing sector to focus on medical office and lab space, Welltower and Ventas are doubling down with major acquisitions. Driven by the aging Baby Boomers - and trillions of dollars in savings and built-up home equity - fundamentals remain particularly compelling over the coming decade for senior housing.

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 lower by 1.0% today and are now lower by 3.6% this week. Commercial mREITs slipped 1.3% today and are now off by 2.9% on the week. Arlington Asset Investment (AAIC) was among the leaders today after it priced $33.5M of 6.00% senior notes due 2026, expecting to use the proceeds to redeem all or a portion of its 6.625% senior notes due 2023.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.26% today, on average, but outperformed their respective common stock issues by an average of 0.90%. So far in 2021, REIT Preferred stocks are higher by 9.57% 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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