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  • Alex Pettee, CFA

Taper Talk • Stocks Dip • Yield Curve Flattens

Summary

  • U.S. equity markets fell sharply Friday - pushing the major averages to their worst week since February - as financial markets continue to digest the Federal Reserve's updated policy outlook.

  • Declining for the fourth-straight day, the S&P 500 finished lower by 1.4% today while the Mid-Cap 400 dipped 2.0% and the Small-Cap 600 slid 2.5%.

  • Real estate equities were also under pressure as the Equity REIT Index finished off by 1.7% with 16 of 19 property sectors in negative territory while Mortgage REIT dipped 1.6%.

  • After initially jumping in the wake of the Fed's updated outlook on Wednesday, the 10-Year Treasury Yield reversed course over the past two days and ended the week at 1.45%, the lowest close in more than three months.

  • 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.

Real Estate Daily Recap

U.S. equity markets fell sharply Friday - pushing the major averages to their worst week since February - as financial markets continue to digest the Federal Reserve's updated policy outlook. Declining for the fourth-straight day, the S&P 500 (SPY) finished lower by 1.4% today while the Mid-Cap 400 (MDY) dipped 2.0% and the Small-Cap 600 (SLY) slid 2.5%. Real estate equities were also under pressure today as the Equity REIT Index finished off by 1.7% with 16 of 19 property sectors in negative territory while the Mortgage REIT Index dipped 1.6%.

After initially jumping in the wake of the Fed's updated outlook on Wednesday, the 10-Year Treasury Yield reversed course over the past two days and ended the week at 1.45%, the lowest close in more than three months. All eleven GICS equity sectors finished lower on the day, dragged to the downside by the Energy (XLE), Utilities (XLU), and Financials (XLF) sectors. 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

The wave of dividend boosts this week continued yesterday afternoon as W. P. Carey (WPC) declared a $1.05/share quarterly dividend, a 0.2% increase from its prior dividend of $1.05, representing a forward yield of roughly 5.5%. 63 equity REITs have now raised their dividend this year, the majority of which have come from REITs that also boosted their payouts in 2020.

CoreLogic reported this week that single-family rents were up 5.3% year over year in April, rising from a 2.4% increase in April 2020, which was the largest annual gain in nearly 15 years, trends that were echoed in fresh data from Zillow this week as well. Residential REITs reported a sharp increase in rental rates over the last three months during their REITweek updates last week as double-digit rates of rent growth are now commonplace across not only the red-hot sunbelt and suburban markets but increasingly in many of the previously troubled urban markets.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 1.3% today and ended the week with declines of 3.5%. Commercial mREITs were lower by 2.3% today and ended the week with declines of 3.0%. Ares Commercial (ACRE) dipped more than 11% after it launched a public offering of 6.5M common stock for total estimated gross proceeds of roughly $103M.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.16% today, on average, but outperformed their respective common stock issues by an average of 1.67%. So far in 2021, REIT Preferred stocks are higher by 9.16% on a price return basis. The average REIT preferred currently pays a dividend yield of 5.99% and trades at a slight premium to par value. After the close today, Public Storage (PSA) announced that it will redeem its 4.95% Series D Preferred (PSA.PD) on July 20, 2021.

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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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