• Alex Pettee, CFA

Bidding Wars • Crypto Crackdown • $6 Billion Home Purchase

Summary

  • U.S. equity markets finished higher Tuesday with the tech-heavy Nasdaq climbing to fresh record-highs following better-than-expected housing data and a continued easing of inflation expectations.

  • Following gains of 1.4% yesterday, the S&P 500 finished higher by 0.5% today while the Mid-Cap 400 gained 0.1% and the Small-Cap 600 rose 0.5%.

  • Real estate equities were among the laggards today as the Equity REIT Index finished lower by 0.5% with 18-of-19 property sectors in negative territory while Mortgage REITs declined 0.1%.

  • Existing Home Sales data this morning underscored the intensifying shortage across the U.S. housing market. Held back by historically low inventory levels, Existing Home Sales topped estimates but continued its recent moderation as prices soared.

  • Asset management firm Blackstone (BX) - through its Blackstone Real Estate Income Trust - agreed to acquire Home Partners of America, a single family rental ("SFR") operator, in a roughly $6B deal that will give the company control of more than 17,000 houses in the United States.

Real Estate Daily Recap

U.S. equity markets finished higher Tuesday with the tech-heavy Nasdaq climbing to fresh record-highs following better-than-expected housing data and a continued easing of inflation expectations. Following gains of 1.4% yesterday, the S&P 500 (SPY) finished higher by 0.5% today while the Mid-Cap 400 (MDY) gained 0.1% and the Small-Cap 600 (SLY) rose 0.5%. Real estate equities were among the laggards today as the Equity REIT Index finished lower by 0.5% with 18 of 19 property sectors in negative territory while the Mortgage REIT Index finished lower by 0.1%.

The focus today was on the roller-coaster price action in Bitcoin (BTC-USD), which has lost half its value over the past two months amid amplified regulatory scrutiny from the Chinese government. Nine of the eleven GICS equity sector finished higher today, led to the upside by the Consumer Discretionary (XLY), Technology (XLK), and Communications (XLC) sectors. Better-than-expected Existing Home Sales data and a strong day from home improvement retailers Home Depot (HD) and Lowe's (LOW) led the Hoya Capital Housing Index to gains today ahead of New Home Sales data tomorrow.

Existing Home Sales data this morning underscored the intensifying shortage across the U.S. housing market. Held back by historically low inventory levels, Existing Home Sales topped consensus estimates but still fell 0.9% from the prior month to a seasonally adjusted annualized rate of 5.8 million units, the fourth-straight month of sequential declines. Despite the moderation, home sales were still higher by nearly 45% from last year. Weighing on demand at the margins - and driving a recent surge in rents - the median existing-home price for all housing types saw a record year-over-year increase of 23.6% in May as inventory remains near historic lows, down 20.6% from one year ago.

Commercial Equity REITs

Single-Family Rental: Asset management firm Blackstone (BX) - through its Blackstone Real Estate Income Trust - agreed to acquire Home Partners of America, a single family rental ("SFR") operator, in a roughly $6B deal that will give the company control of more than 17,000 houses in the United States. Blackstone is looking to re-enter the red-hot single-family rental space, which it recently exited following the sale of its last shares of Invitation Homes (INVH), which it launched in 2012 in the wake of the financial crisis and took public as a REIT back in 2017. INVH has since become the single largest SFR operator in the U.S. with 80,000 homes. Last week in PropTech Revolution, we discussed recent trends in the sector and why SFR REITs are the single-best performing property sector since the end of 2019.

Data Center: As part of its strategic shift towards becoming a pure-play technology REIT, Colony Capital (CLNY) completed its re-branding as DigitalBridge (DBRG) and hosted an Investor Day event in which it provided full-year guidance and outlined its long-term growth targets. DigitalBridge now manages 22 portfolio and affiliated companies across the "digital infrastructure" ecosystem, comprising roughly 100 data centers and 440k cell tower sites. DBRG now expects 2021 digital investment management revenue of $145M-$155M, up from its previous guidance of $140M-$150M.

Cell Tower: Yesterday, we published Cell Tower REITs: All In On 5G. American Tower (AMT), Crown Castle (CCI), and SBA Communications (SBAC) - are again pulling their weight after uncharacteristically lagging earlier this year, catalyzed by strong first quarter earnings and major M&A developments. AT&T (T) and Verizon (VZ) ended their tumultuous foray into the media business this year, divesting their capital-draining ancillary businesses as competition has heated-up with T-Mobile (TMUS) and Dish Network (DISH). While no longer cheap, Cell Tower REITs should remain a growth engine of the real estate sector, particularly as the newly recapitalized carriers go "all-in" on 5G network build-outs.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.3% today but remain higher by 1.6% this week. Commercial mREITs gained 0.3% today to push their week-to-date gains to 2.4%. Two Harbors (TWO) was among the leaders today after officially being added to the S&P SmallCap 600 Index. Also of note, effective Thursday, Colony Credit (CLNC) will rebrand to BrightSpire Capital (BRSP) as part of its management internalization.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.13% today, on average, and outperformed their respective common stock issues by an average of 0.80%. So far in 2021, REIT Preferred stocks are higher by 9.38% on a price return basis. The average REIT preferred currently pays a dividend yield of 5.96% and trades at a slight premium to par value. This morning, Gladstone Commercial (GOOD) priced its new 6.00% Series G Preferred, raising $100m in gross proceeds, which it plans to use to optionally redeem all of its 7.00% Series D Preferred (GOOD.PD).


Economic Data This Week

The busy economic calendar continues on Wednesday with New Home Sales for May which is each expected to show that home buying activity has moderated slightly from historically strong levels earlier this year from the combination of supply constraints and soaring prices. On Friday, we'll see inflation data with the PCE Price Index - the Fed's "preferred" gauge of inflation - which is expected to show that prices are rising at the fastest level in at least a decade. We'll also see Personal Income & Spending data on Friday and a flurry of PMI and sentiment data throughout the week.

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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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