Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA
  • U.S. equity markets rallied to fresh record-highs this past week on data showing faster-than-expected job growth and continued strength behind the housing market while jitters over rising interest rates calmed.

  • Closing the holiday-shortened week at record highs, the S&P 500 gained 1.2% led by a rebound in large-cap technology stocks while Small-Caps and Mid-Caps lagged for the third straight week.

  • Led by the residential REIT sectors, real estate equities were higher on the week as the broad-based Equity REIT Index gained 0.7% with 13 of 19 property sectors in positive territory.

  • Housing data showed that robust levels of homebuying activity continue to clash with record-low inventory levels, which has accelerated the upward pressure on home values and suburban rents.

  • Animal Spirits Reignited? Brookfield Asset Management reached an agreement with Brookfield Property to acquire the remainder of its outstanding shares. The $6.5B would be the largest REIT-involved deal in two years.

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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.

Summary

  • U.S. equity markets rallied Thursday to fresh record-highs ahead of tomorrow's nonfarm payrolls report as the recent stabilization in long-term interest rates has temporarily relieved concerns about near-term overheating.

  • Closing with weekly gains of 1.2%, the S&P 500 finished higher by 1.2% today while the Dow Jones Industrial Average jumped 172 points. The tech-heavy Nasdaq 100 jumped 1.7%.

  • Real estate equities were among the leaders as the broad-based Equity REIT ETFs (VNQ) gained 1.9% with 18-of-19 property sectors in positive territory while the Mortgage REIT ETFs gained 0.3%.

  • Brookfield Asset Management (BAM) announced that it reached an agreement with Brookfield Property Partners (BPY) - and by extension Brookfield Property REIT (BPYU) - to acquire all of the units that it doesn't already own.

  • The deal represents a 2% premium to yesterday's close. BPY and BPYU each finished lower on the day. BPY unitholders and holders of BPYU will not receive further quarterly distributions on their securities.

Real Estate Daily Recap

U.S. equity markets rallied Thursday to fresh record-highs ahead of tomorrow's nonfarm payrolls report as the recent stabilization in long-term interest rates has temporarily relieved concerns about near-term overheating. Closing with weekly gains of 1.2%, the S&P 500 ETF (SPY) finished higher by 1.1% today while the Dow Jones Industrial Average (DJI) jumped 172 points. Real estate equities were among the leaders as the broad-based Equity REIT ETFs (VNQ) gained 1.9% with 18-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained by 0.3%.

Eight of the eleven GICS equity sectors finished higher on the day, led to the upside today by the Energy (XLE) and Technology (XLK) sectors. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders today, boosted by analyst calls that the Biden administration's infrastructure plan could be particularly beneficial to the housing industry. 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

Malls: Brookfield Asset Management (BAM) announced that it reached an agreement with Brookfield Property Partners (BPY) - and by extension Brookfield Property REIT (BPYU) - to acquire all of the limited partnership units of BPY that it doesn't already own for $18.17 per unit, representing a total consideration of $6.5B. Each BPY unitholder can choose $18.17 in cash, 0.3979 of a BAM class A share, or 0.7268 of a BPY preferred unit, per BPY share, subject to pro-ration. The offer represents an increase of 10%, including the appreciation of BAM class A shares, over the non-binding proposal made by BAM on Jan. 4, 2021, a 26% premium to BPY's unit price on Dec. 31, 2020 and a 6% premium to the average price of BPY units since the announcement was made on Jan. 4. BPY unitholders and holders of BPYU will not receive further quarterly distributions on their securities.

Earlier this week, we published Cell Tower REITs: 5G Dominance. Emerging from relative obscurity early last decade, Cell Tower REITs have developed into dominant players of both the telecommunications and real estate sectors through relentless growth. The single largest property sector, three Cell Tower REITs now account for almost a fifth of the total REIT market value and control nearly 75% of wireless communication infrastructure in the U.S. After uncharacteristically lagging early this year, Cell Tower REITs - along with other "essential" property sectors across the technology and housing sectors - have surged over the past three weeks. Cell Tower REITs delivered another stellar year in 2020 with FFO growth of nearly 9% with no signs of slowing.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.7% today to close the week with 0.3% gains. Commercial mREITs gained 1.3% today to end the week higher by 0.2%. Chimera Investment (CIM) finished higher by 1.0% after providing a business update in which it noted that it sponsored four mortgage loan securitizations totaling $2.62B and paid off a $400M loan secured by certain mortgage-backed securities in March. Sachem Capital (SACH) was higher by 2.1% today after it declared a $0.12/share dividend, in line with its previous rate, representing a forward yield of roughly 9.2%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.67% today, on average, but underperformed their respective common stock issues by an average of 1.20%. After the approval of the previously discussed Brookfield consolidation and related transactions by BPY unitholders, it's expected that Brookfield 6.375% Series A Preferred Stock (BPYUP) will be redeemed at its par value of $25 per share plus any accrued and unpaid dividends. Also today, as previously announced, Stag Industrial's 6.875% Series C Cumulative Redeemable Preferred Stock (STAG.PC) was redeemed.

Over in the bond markets, Empire State Realty (ESRT) announced that it closed on an $850M, four-year revolving credit agreement that replaces an existing undrawn credit facility that was set to mature on Aug. 29, 2021. The new facility, which has an initial maturity of March 31, 2025 has a sustainability-linked pricing mechanism that reduces the borrowing spread if certain benchmarks are achieved this year. Elsewhere, Safehold (SAFE) announced that it replaced its existing $600M secured revolving credit facility with a new $1B unsecured revolving credit facility. The new facility will bear interest at a rate of LIBOR plus 100 basis points, a 30 basis point savings from the prior facility.

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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.

mmary

  • U.S. equity markets finished mostly higher Wednesday following a slate of generally better-than-expected economic data and ahead of the unveiling of the Biden Administration's infrastructure spending program.

  • Closing the quarter within 0.5% of all-time highs, the S&P 500 finished higher by 0.4% today. The tech-heavy Nasdaq 100 jumped 1.5% today but still lagged in the first quarter.

  • Real estate equities were mostly lower today - but held onto its quarterly outperformance - as the broad-based Equity REIT ETFs declined by -0.6% today but ended Q1 with 8% gains.

  • Tanger Outlets (SKT) announced that it sold 6.9M shares through its ATM facility, resulting in an expected dilutive impact of 18 cents/share. Based on guidance provided last quarter, SKT now sees its Core FFO declining by another 5.7% this year following the 32% plunge in 2020.

  • TSA Checkpoint data showed that the recovery in domestic travel has picked-up meaningfully over the last month following a very slow recovery over the prior ten months. As a percent of 2019-levels of travel, the 7-day average climbed above 60% for the first time.

Real Estate Daily Recap

U.S. equity markets finished mostly higher Wednesday following a slate of generally better-than-expected economic data and ahead of the unveiling of the Biden Administration's infrastructure spending program. Closing the quarter within 0.5% of all-time highs, the S&P 500 ETF (SPY) finished higher by 0.4% today while the Dow Jones Industrial Average (DJI) declined by 85 points. The tech-heavy Nasdaq 100 (QQQ) jumped 1.5%, but still lagged considerably in Q1. Real estate equities were mostly lower today - but held onto its quarterly outperformance - as the broad-based Equity REIT ETFs (VNQ) declined by -0.6% today with 12-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) declined by 0.3%.

Equity markets have rebounded after a few days of volatility from the apparent implosion and fallout from the suspected liquidation trades related to Archegos Capital. The 10-Year Treasury Yield ticked lower today despite ADP Employment data this morning showing that job growth rebounded faster-than-expected in March ahead of Friday's nonfarm payrolls report which will be released to a closed equity market. Homebuilders and the broader Hoya Capital Housing Index were mixed today as softer-than-expected Pending Home Sales data resulting from record-low inventory levels was offset by data showing continued strength in mortgage demand for home purchases.

Quarterly Performance

Through one quarter of 2021, Equity REITs are higher by 8.1% while Mortgage REITs have gained 10.8%. This compares with the 6.3% advance on the S&P 500 and the 13.4% gain on the S&P Mid-Cap 400. Eighteen of the nineteen REIT sectors are in positive territory for the year, while on the residential side, all eight sectors in the Hoya Capital Housing Index are higher. At 1.75%, the 10-Year Treasury Yield has climbed 80 basis points since the start of the year and is 123 basis points above its all-time closing low of 0.52% last August, but exactly 150 basis points below its 2018-peak of 3.25%.

Commercial Equity REITs

Malls: Tanger Outlets (SKT) finished lower by 0.6% after announcing that it raised $130M in equity capital through the sale of 6.9M shares of its common stock at $19.02 apiece through its at-the-market ("ATM") equity offering program. It plans to use the capital to redeem $150M (out of $250M) of its 3.875% senior notes due December 2023. The company currently expects the 2021 net dilutive impact per share to be 18 cents to its FFO and 4 cents to Core FFO. With that revision, based on guidance provided last quarter, SKT now sees its Core FFO declining by another 5.7% this year following the 32% plunge in 2020.

Hotels: TSA Checkpoint data showed that the recovery in domestic travel has picked-up meaningfully over the last month following a very slow recovery over the prior ten months. As a percent of 2019-levels of travel, the seven day moving average climbed above 60% for the first time yesterday. This evening, we'll publish an update on the Hotel REIT sector to The REIT Forum, taking a look at Q4 earnings reports and analyzing commentary from hotel REITs on the expectations for the rebound in travel demand in 2H21.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 1.1% today and are now lower by -1.5% on the week. Commercial mREITs declined by 0.5% today and remain lower by -1.1% this week. Sachem Capital (SACH) was among the leaders today after it reported Q4 results this morning, the final mREIT to report their quarterly results. The small-cap mREIT focused on multifamily lending has been one of the strongest performing mREITs so far this year with gains of over 25% after being one of the best-performers from 2020 as well.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.29% today, on average, and outperformed their respective common stock issues by an average of 1.11%. So far in 2021, REIT Preferred stocks are higher by 5.74% on a price-return basis. The average REIT preferred currently pays a dividend yield of 6.34% 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.

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Hoya Capital Real Estate ("Hoya Capital") is an SEC-registered investment advisory firm that provides investment management services to ETFs, individuals, and institutions, focusing on portfolio and index management of publicly traded securities in the real estate industry. It is not possible to invest directly in an index. Index performance cited in this website or commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Nothing on this site nor any published commentary by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and should not be considered a complete discussion of all factors and risks. Data quoted represents past performance, which is no guarantee of future results. Investing involves risk. Loss of principal is possible. Investments in companies involved in the real estate and housing industries involve unique risks, as do investments in ETFs, mutual funds, and other securities. Hoya Capital has no business relationship with any company discussed/mentioned. Hoya Capital never receives compensation from any company discussed/mentioned. Hoya Capital, its affiliate, and/or its clients and/or its employees may hold positions in securities or funds discussed on this website and our published commentary. A complete list of holdings and other important disclosures and definitions are available by clicking the links below.

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