• Alex Pettee, CFA

Weak Jobs Report • Soaring Rents • REITs Lead On Week

Summary

  • U.S. equity markets were mixed Friday following a disappointing employment report that raised questions about the momentum behind the economic recovery and monetary policy direction of the Federal Reserve.

  • Hanging onto gains of 0.6% for the week, the S&P 500 finished fractionally lower today while the Mid-Cap 400 slipped 0.5% and the Small-Cap 600 declined 0.6%.

  • Real estate equities were again leaders today - and posted robust gains on the week. The Equity REIT Index finished higher by nearly 4% on the week.

  • The U.S. economy added just 235k jobs in August - far below consensus expectations of 720k - providing further evidence that progress on economic reopenings stalled amid the "fourth wave" of the pandemic.

  • Single Family Rental REIT Invitation Homes (INVH) reported this morning that rent growth continues to accelerate across its portfolio, noting that it achieved 18.9% growth on new leases in August.

Real Estate Daily Recap

U.S. equity markets were mixed Friday following a disappointing employment report that raised questions about the momentum behind the economic recovery and monetary policy direction of the Federal Reserve. Hanging onto gains of 0.6% for the week, the S&P 500 finished fractionally lower today while the Mid-Cap 400 slipped 0.5% and the Small-Cap 600 declined 0.6%. Real estate equities were again leaders today - and posted robust gains on the week - with the Equity REIT Index fractionally higher today with 9 of 19 property sectors in positive territory while Mortgage REITs slipped 0.6%.

The "reopening trade" hit the brakes today following the weaker-than-expected employment data and on reports that Senate Democrats are pushing ahead with a broad range of tax hike proposals on investing activity. Eight of the eleven GICS equity sectors were lower today, dragged on the downside by the economically sensitive sectors including Financials (XLF) and Materials (XLF). Residential REITs led the Hoya Capital Housing Index today after an interim update from Invitation Homes confirmed that upward pressure on rents continued to accelerate into August as the single family rental operator reported a nearly 20% surge in new lease rates.

The Bureau of Labor Statistics reported this morning that the U.S. economy added just 235k jobs in August - far below consensus expectations of 720k - providing further evidence that progress on economic reopenings stalled amid the "fourth wave" of the COVID pandemic. The weak BLS jobs report on Friday followed weaker-than-expected ADP Employment on Wednesday and is broadly consistent with high-frequency activity data that have indicated signs of emerging softness. The pace of hiring - the weakest since January - was weighed down by a sudden stagnation in hiring in the leisure and hospitality sector and a surprising decline in hiring in construction and retail trade.

Equity REITs

Shopping Center: Today, we published Shopping Center REITs: Big Box Boom. The COVID pandemic has radically transformed consumer spending habits - perhaps permanently - shifting spending towards goods over services and towards larger-format retailers over smaller shops. While enclosed regional malls face a long and uncertain road to recovery, the outlook for open-air Shopping Center REITs has brightened considerably this year. Rent collection has fully normalized and trends in occupancy rates and leasing have been encouraging. Valuations again appear incrementally more attractive as the share price rally has cooled while organic fundamentals and external growth potential has heated up.

Single-Family Rental: Invitation Homes (INVH) reported this morning that rent growth continues to accelerate across its portfolio, noting that it achieved 18.9% growth on new leases in August and 8.0% on renewals - both record-highs for the company - translating to a blended rate of rent growth of 11.0%. Despite the rent increase, occupancy rates remained near record-high levels of 98.1% in July and August. As discussed in our recent report on the SFR REIT sector, mirroring the surge in suburban home values amid a historic housing shortage, SFR REITs reported double-digit rent growth in Q2 while occupancy rates continue to set record highs with few signs of cooling into late summer.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.2% today to finish the week lower by 0.3%. Commercial mREITs slipped 0.3% today but remained higher by 0.4% on the week. On a slow day of newsflow, Arlington Asset (AAIC) and Lument Financial (LFT) led to the upside while ACRES Realty (ACRE) and iStar (STAR) were laggards. The average residential mREIT now pays a dividend yield of 8.9% while the average commercial mREIT pays a dividend yield of 6.7%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.07% today, on average, and outperformed their respective common stock issues by an average of 0.68%. So far in 2021, REIT Preferred stocks are higher by 11.46% on a price return basis. The average REIT preferred pays a current yield of 5.87% and trades at a slight premium to par value. Over in the bond markets today, Public Storage (PSA) priced €700M of 0.500% senior notes due 2030.

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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