Keepin' It Real  

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Billboard SPAC • WFH Trends • Senior Housing Recovery

Summary

  • U.S. equity markets retreated from yesterday's record-highs while long-term interest rates eased amid indications that the Biden Administration's proposed $2.3 trillion spending plan may face challenges from within its party.

  • Following gains of 1.4% yesterday, the S&P 500 finished lower by 0.1% today while the Dow Jones Industrial Average declined by 97 points following yesterday's 374-points rally.

  • Real estate and other yield-sensitive equity sectors were among the leaders today as the broad-based Equity REIT Index climbed by 0.3% with 16-of-19 property sectors in positive territory.

  • Welltower (WELL) jumped nearly 2% today after providing a business update in which it noted that COVID cases have seen a 99% decline in the trailing two-week case count since the peak in mid-January 2021.

  • Lamar Advertising (LAMR) announced that it has formed a subsidiary - Lamar Partnering Corporation (LPCXU) - a special purpose acquisition company ("SPAC") that has filed to raise $300M in an IPO.

Real Estate Daily Recap

U.S. equity markets retreated from yesterday's record-highs while long-term interest rates eased amid indications that the Biden Administration's proposed $2.3 trillion spending plan may face challenges from within its party. Following gains of 1.4% yesterday, the S&P 500 ETF (SPY) finished lower by 0.1% today while the Dow Jones Industrial Average (DJI) declined by 97 points following yesterday's 374-points rally. Real estate equities were among the leaders today as the broad-based Equity REIT ETFs (VNQ) climbed by 0.3% with 16-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) finished lower by 0.1%.

The 10-Year Treasury Yield pulled back 6 basis points to close at 1.66% after several key Senators indicated opposition to President Biden's proposed $2.3 trillion spending plan. Six of the eleven GICS equity sectors finished higher on the day, led to the upside by the Utilities (XLU) and Consumer Discretionary (XLY) sectors. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders today, boosted by a Zillow (Z) report detailing the potentially enduring effects on the U.S. housing market, noting that "The pandemic has catalyzed purchases by millennial first-time buyers, many of whom can now work from anywhere."

Commercial Equity REITs

Healthcare: Welltower (WELL) jumped nearly 2% today after providing a business update in which it noted that it expects Q1 normalized FFO per share to come in at the top end of its 71 cents-76 cents guidance range. WELL also noted that it expects Q1 average occupancy for its Seniors Housing Operating ("SHO") portfolio to "finish favorably to the midpoint of its -275 to -375 basis points guidance range." 99% of WELL's senior housing communities are accepting new residents, up from 84% as of mid-January 2021 as COVID cases have seen a 99% decline in trailing two week (TTW) case count since peak in mid-January 2021. 99% of communities have zero reported resident COVID-19 cases on a TTW basis versus 64% in mid-January 2021.

Billboards: Lamar Advertising (LAMR) announced that it has formed a subsidiary - Lamar Partnering Corporation (LPCXU), a special purpose acquisition company ("SPAC") that has filed to raise $300M in an IPO. LPC plans to search for a partner at the intersection of the out-of-home advertising, technology and communications sectors. Lamar Advertising would own roughly 20% of LPC. LPC will be managed by members of Lamar’s management team, including Ross Reilly, Lamar’s Vice President of Mergers and Acquisitions and Business Analytics, who will serve as LPC’s Chief Executive Officer. The SPAC will list on Nasdaq under the ticker symbol LPCXU.





Cannabis: This evening, we'll to publish an updated sector report on Cannabis REITs on The REIT Forum. Innovative Industrial Properties (IIPR) - which has been the best-performing REIT over the past two years - has rallied in recent days after New York legalized recreational marijuana. Medical usage is now legal in 35 states while recreational usage is legal in 15 states. In addition to IIPR, we'll take a look at small-cap Power REIT (PW) and the newly-listed cannabis REIT AFC Gamma (AFCG). The ongoing federal prohibition - and the resulting limit on access to traditional banking - has forced cultivators and retailers to turn to alternative sources for capital, including cannabis REITs.

Hotels: Yesterday, we published Spring Break Is Back. Powered by Spring Break demand and accelerated by the vaccine roll-out, the recovery in domestic leisure travel - and hotel occupancy - has picked up meaningfully over the past month. TSA data showed that travel is now at 60% of pre-pandemic levels after bottoming at less than 5% while STR reported that hotel occupancy has recovered to 80% of pre-pandemic levels. Optimism for a post-pandemic recovery has sent hotel REITs surging since late-2020, but we maintain our outlook that the recovery will be uneven across market segments, and believe that suburban-focused and leisure-oriented properties will bounce far faster than urban business-focused hotels.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.1% today but remain lower by -0.5% on the week. Commercial mREITs gained 0.2% today and are now flat this week. ACRES Realty (ACR) and Tremont Mortgage (TRMT) led to the upside today while Colony Credit Real Estate (CLNC) was a laggard as investors digest the impact of yesterday's announcement that it reached an agreement with Colony Capital (CLNY) to end Colony's external management agreement with the mortgage REIT, consistent with CLNC's previously announced strategic alternative review process and is consistent with Colony Capital's digital focus.

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 0.25%. So far in 2021, REIT Preferred stocks are higher by 6.79% on a price-return basis. The average REIT preferred currently pays a dividend yield of 6.29% and trades at a slight discount to par value. Over in the bond markets, Uniti Group (UNIT) announced that it will issue $570M of senior secured notes due 2028, using the proceeds to fund the redemption of outstanding 6.00% senior secured notes due 2023.

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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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