REIT Mega-Merger • Happy Homebuilders • Retail Revival

Summary

• U.S. equity markets climbed to fresh record-highs Thursday after retail sales and housing data showed a reacceleration in early Spring while jobless claims declined to the lowest level since last March.

• Real estate equities were among the leaders today as the broad-based Equity REIT ETFs jumped 1.8% 17-of-19 property sectors in positive territory. Mortgage REITs finished flat.

• Kimco Realty (KIM) and Weingarten Realty (WRI) announced a merger to become the largest open-air shopping center REIT with a pro forma equity market cap of roughly $12B.

• Boosted by the third wave of stimulus checks, Retail Sales were historically strong in March, surging by 9.8% from the prior month and were higher by 27.7% from the prior year.

• Homebuilder Confidence data showed that Home Buyer Traffic climbed to the second-highest level on record last month as the red-hot housing industry looks to build further strength into the Spring buying season.

Real Estate Daily Recap

U.S. equity markets climbed to fresh record-highs Thursday after retail sales and housing data showed a reacceleration in early Spring while jobless claims declined to the lowest level since last March. Lifting its week-to-date gains to over 1%, the S&P 500 ETF (SPY) finished higher by 1.1% today while the Mid-Cap 400 (MDY) gained 0.7% and the Small-Cap 600 (SLY) climbed 0.4%. Real estate equities were among the leaders today as the broad-based Equity REIT ETFs (VNQ) jumped 1.8% 17-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) finished flat.

The "American Exceptionalism" pattern is back this week as U.S. equities, bonds, and the U.S. dollar have rallied in synchrony. Despite strong economic data this morning, the 10-Year Treasury Yield retreated to the lowest levels since early March amid continued COVID issues abroad. Nine of the eleven GICS equity sectors finished higher on the day, led to the upside by Real Estate (XLRE), Technology (XLK), and Healthcare (XLV). A strong day from residential REITs lifted the Hoya Capital Housing Index to fresh record highs following better-than-expected housing data this morning.

The red-hot housing industry - which has been a continued leader of the early economic recovery - showed signs of continued strength in the latest report this morning from the NAHB. The Homebuilder Sentiment Index - a leading indicator of housing activity - climbed one point to 83 in April from last month as homebuilders continue to sell homes as quickly as they can build them. The sub-index for Traffic of Prospective Buyers climbed to the second-highest level on record, offsetting some pressure from concerns over rising costs and constraints on land and lumber. We'll see more housing data tomorrow when the Census Bureau reports Housing Starts and Building Permits.

Elsewhere on the economic data front, the Census Bureau reported that Retail Sales were stronger than consensus estimates in March, surging by 9.8% from the prior month and were higher by 27.7% from the prior year. Sales were boosted by the third wave of stimulus checks as all categories recorded a sequential increase in sales. Clothing sales more than doubled from last March during the initial wave of economic lockdowns. Consumers continued to spend heavily on housing-related goods as the Building Materials category is higher by 29.4% from last year while Furniture sales are higher by 46.8%.

Commercial Equity REITs

Shopping Center: Kimco Realty (KIM) and Weingarten Realty (WRI) announced a merger to become the largest open-air shopping center REIT with a pro forma equity market cap of roughly $12B. The merger will create a national operating portfolio of 559 open-air grocery-anchored shopping centers and mixed-use assets comprising approximately 100 million square feet of gross leasable area. Under the terms of the agreement, each WRI share will be converted into 1.408 newly issued Kimco shares plus $2.89 in cash, valuing each WRI share at $30.32, an 11% premium to WRI's closing stock price on Wednesday and is expected to close during the second half of 2021.

Storage: This merger announcement is the second major M&A development of the week following Public Storage's (PSA) announcement that it plans to acquire ezStorage - the largest self-storage company in Maryland, Virginia, and Washington DC - for $1.8B. PSA announced today that it has priced $2B of senior notes to fund the acquisition in three tranches: 1) a $700M tranch of floating-rate notes due April 2024; 2) a $650M tranch of 1.850% fixed-rate notes due May 2028; and 3) a $650M tranch of 2.3% fixed-rate notes due May 2031. We believe that acquisition and consolidation opportunities should be plentiful over the next decade for storage REITs as the weaker operators are "shaken out" by COVID dislocations.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by -0.5% today and are now lower by 0.7% on the week. Commercial mREITs were flat today but remain higher by 2.1% on the week. Orchid Island (ORC) dipped more than 11% today after announcing preliminary Q1 results yesterday afternoon that were weaker than consensus estimates. ORC noted that its Book Value Per Share ended the quarter at $4.94, a 9.5% decline from last quarter. Excluding the impact of the dividend - representing a forward yield of 12.7% - the economic book value declined by 6.0%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished flat today, on average, but underperformed their respective common stock issues by an average of -0.18%. So far in 2021, REIT Preferred stocks are higher by 6.57% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.29% and trades at a slight discount to par value.

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The REIT Forum is now the exclusive home to Hoya Capital premium research. Visit our website and join our email list for quick access to our real estate research library: HoyaCapital.com where we have links all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

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.

Crypto Maina • Bank Earnings • mREIT M&A

Summary

• U.S. equity markets were mixed Wednesday as corporate earnings season kicked off with strong reports from several banks while investor attention was focused on the listing of cryptocurrency exchange Coinbase.

• Retreating from fresh record-highs yesterday, the S&P 500 finished lower by 0.3% on the day, but the Mid-Cap and Small-Cap 600 indexes gained 0.6% and 1.0%, respectively.

• Real estate equities finished mostly lower today as the broad-based Equity REIT Index declined by 0.5% with 15-of-19 property sectors in negative territory.

• Following the slowest week for trading volume this year, the start of corporate earnings season, the busy slate of economic data, and IPO activity have revived volumes this week.

• Mortgage REIT New Residential (NRZ) announced that it will acquire Caliber Home Loans for $1.675 billion in a deal that is expected to boost the company's origination platform and retail footprint.

Real Estate Daily Recap

U.S. equity markets were mixed Wednesday as corporate earnings season kicked off with strong reports from several banks while investor attention was focused on the historic direct listing of cryptocurrency exchange Coinbase. Retreating from fresh record-highs yesterday, the S&P 500 ETF (SPY) finished lower by 0.3% on the day, but the Mid-Cap 400 (MDY) and Small-Cap 600 (SLY) indexes gained 0.6% and 1.0%, respectively. Real estate equities finished mostly lower today as the broad-based Equity REIT ETFs (VNQ) declined by 0.5% with 15-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) finished lower by 0.2%.

Following the slowest week for trading volume this year, the start of corporate earnings season, the busy slate of economic data, and IPO activity have revived volumes this week. The direct listing of cryptocurrency platform Coinbase's (COIN) appears likely to go down as the most actively traded first day ever and overshadowed strong earnings results this morning from Goldman (GS) and JP Morgan (JPM). Five of the eleven GICS equity sectors finished higher on the day, led to the upside by the Energy (XLE), Materials (XLB), and Financials (XLF) sectors. Elsewhere, homebuilders and the broader Hoya Capital Housing Index were flat ahead of Homebuilder Sentiment data tomorrow and Housing Starts data on Friday.

Commercial Equity REITs

Healthcare: This afternoon, we'll publish an updated Healthcare REIT report on The REIT Forum. Healthcare REITs - particularly senior housing and long-term care facilities - have rebounded as the pace of vaccinations have increased across the country, leading to nearly a nearly-complete elimination of COVID cases in senior living facilities. Last week, Welltower (WELL) provided a business update in which it reported similar vaccination and COVID trends while noting that it expects Q1 normalized FFO per share to come in at the top end of its 71 cents-76 cents guidance range.

Yesterday we published Prison REITs: The End Is Here. Arguably the "darkest corner" of the REIT sector - prison REITs have been punished by ever-intensifying political hostilities and declining prison populations across the country. Last week, GEO Group (GEO) joined CoreCivic (CXW) in eliminating its dividend and "evaluating its structure as a REIT." Having been effectively "canceled" by public capital markets, privatization appears increasingly likely. Political hostilities aside, demand for private facilities - which have always been a "supplier of last resort" - has declined materially as incarceration rates in the U.S. revert towards the developed market average.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by -0.8% today and are now flat this week. Commercial mREITs declined by -0.8% as well today, but remain higher by 2.2% on the week. New Residential (NRZ) finished lower by 4.9% after announcing that it will acquire Caliber Home Loans for $1.675 billion, or approximately 1.0x expected tangible book value at closing. The deal is expected to boost the company's origination platform and retail footprint. NRZ subsequently announced a secondary stock offering of 45m shares of its common stock to fund the acquisition.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by -0.11% today, on average, but outperformed their respective common stock issues by an average of 0.52%. So far in 2021, REIT Preferred stocks are higher by 6.63% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.28% and trades at a slight discount to par value.

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Join our Mailing List on our Website

The REIT Forum is now the exclusive home to Hoya Capital premium research. Visit our website and join our email list for quick access to our real estate research library: HoyaCapital.com where we have links all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

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.

Vaccine Halt • Storage M&A • Inflation Heats-Up

Summary

• U.S. equity markets were mixed Tuesday as concerns over the impact of the temporary halt of J&J vaccinations - and ongoing COVID issues abroad - weighed on reopening sensitive sectors.

• Closing at fresh record-highs, the S&P 500 gained 0.3% on the day, but the Mid-Cap 400 and Small-Cap 600 indexes declined by -0.4% and -0.8%, respectively.

• Real estate equities were again among the leaders today amid a pull-back in interest rates as the broad-based Equity REIT Index gained 0.5% with 15-of-19 property sectors in positive territory.

• CPI inflation data showed a slightly faster-than-expected rise in consumer prices last month. Consumer prices rose 0.6% from last month, driven by a jump in gasoline prices, which pushed the annual increase to 2.6% - the largest annual rise since 2012.

• Public Storage (PSA) gained more than 2% today after announcing plans to acquire ezStorage - the largest self-storage company in Maryland, Virginia, and Washington DC - for $1.8B.

Real Estate Daily Recap

U.S. equity markets were mixed Tuesday as concerns over the impact of a temporary safety-related halt of the J&J vaccine in the U.S. - and ongoing COVID issues abroad - weighed on reopening sensitive sectors. Closing at fresh record-highs, the S&P 500 ETF (SPY) gained 0.3% on the day, but the Mid-Cap 400 (MDY) and Small-Cap 600 (SLY) indexes declined by -0.4% and -0.8%, respectively. Real estate equities were again among the leaders today amid a pull-back in interest rates as the broad-based Equity REIT ETFs (VNQ) finished higher by 0.5% with 15-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) finished higher by 0.5%.

Despite a hotter-than-expected CPI inflation report this morning, COVID concerns dragged the 10-Year Treasury Yield lower by 5 basis points as investors tempered growth and inflation expectations. Seven of the eleven GICS equity sectors finished higher on the day, led to the upside by the Utilities (XLU), Consumer Discretionary (XLY), and Technology (XLK) sectors. Within the Hoya Capital Housing Index, another strong day from residential REITs offset a mixed day from homebuilders ahead of a busy slate of housing data beginning tomorrow with mortgage application data.

All eyes are on inflation data as investors remain skittish about a potential "overheating" U.S. economy from COVID-related fiscal stimulus measures clashing with supply chain constraints. The BLS reported that Core CPI - which excludes food and energy - was higher by 0.33% in March - the largest month-over-month increase since last August, which pushed the annual increase to 1.65%. The "headline" CPI Index showed more a more significant rise of 0.6% from last month driven by a jump in gasoline prices, which pushed the annual increase to 2.6% - the largest annual rise since 2012.

Commercial Equity REITs

Today we published Prison REITs: The End Is Here. Arguably the "darkest corner" of the REIT sector - prison REITs have been punished by ever-intensifying political hostilities and declining prison populations across the country. Last week, GEO Group (GEO) joined CoreCivic (CXW) in eliminating its dividend and "evaluating its structure as a REIT." Having been effectively "canceled" by public capital markets, privatization appears increasingly likely. Political hostilities aside, demand for private facilities - which have always been a "supplier of last resort" - has declined materially as incarceration rates in the U.S. revert towards the developed market average.

Storage: Public Storage (PSA) gained more than 2% today after announcing plans to acquire ezStorage - the largest self-storage company in Maryland, Virginia, and Washington DC - for $1.8B. ezStorage's portfolio comprises 48 properties located in submarkets with "strong demand drivers and high barriers for new property development." PSA expects the transaction to be immediately accretive to FFO following an anticipated closing in May 2021. We believe that acquisition and consolidation opportunities should be plentiful over the next decade for these storage REITs as the weaker operators are "shaken out" by COVID dislocations. Storage REITs have historically been one of the more active acquirers among REIT sectors as external growth via acquisitions has explained a significant percentage of FFO growth over the last decade.

Malls: Washington Prime Group (WPG) jumped more than 8% today after the troubled mall REIT reached an agreement to extend its forbearance agreements with certain lenders and noteholders for two more weeks which were set to expire tomorrow. WPG warned last month that it may restructure through a Chapter 11 bankruptcy proceeding. While higher-productive mall REITs like Simon Property (SPG) and Macerich (MAC) see stabilization in 2021, essentially all of the other smaller mall REITs face a potentially long and uncertain road to recovery.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.4% today and are now higher by 0.9% this week. Commercial mREITs gained 1.2% today, pushing their gains on the week to 2.2%. NexPoint Real Estate (NREF) gained 1.3% after announcing a senior note offering to fund additional investments. Dynex Capital (DX) gained 0.5% today after it declared a $0.13/share monthly dividend, in line with its previous rate, representing a forward yield of 8.0%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.17% today, on average, but underperformed their respective common stock issues by an average of -0.14%. So far in 2021, REIT Preferred stocks are higher by 6.78% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.29% and trades at a slight discount to par value.

To Continue Reading, Click Here To Visit Seeking Alpha!

Join our Mailing List on our Website

The REIT Forum is now the exclusive home to Hoya Capital premium research. Visit our website and join our email list for quick access to our real estate research library: HoyaCapital.com where we have links all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

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.