• Alex Pettee, CFA

Bitcoin ETF • Stocks Rally • REIT Earnings

Summary

  • U.S. equity markets were broadly higher Tuesday following another slate of solid corporate earnings results, outweighing ongoing concerns about lingering supply chain issues and a global energy crunch.

  • Finishing higher for the fifth-straight trading session, the S&P 500 climbed another 0.8% today while the Mid-Cap 400 gained 0.3% and the Small-Cap 600 rose 0.2%.

  • Real estate equities were mixed today as the Equity REIT Index gained 0.1% - boosted by a rebound from technology REITs - but 15-of-19 property sectors finished in negative territory.

  • Equity LifeStyle (ELS) kicked off earnings season Monday afternoon with another stellar report, raising its full-year NOI guidance to 8.4% - an increase of 50 basis points - and its FFO outlook to 15.2%.

  • Crypto has again dominated the spotlight as Bitcoin (BTC-USD) climbed to fresh record highs as the first Bitcoin ETF - which holds derivatives contracts tracking the price of bitcoin - began trading today.

Real Estate Daily Recap

U.S. equity markets were broadly higher Tuesday following another slate of solid corporate earnings results, outweighing ongoing concerns about lingering supply chain issues and a global energy crunch. Finishing higher for the fifth-straight trading session, the S&P 500 climbed another 0.8% today while the Mid-Cap 400 gained 0.3% and the Small-Cap 600 rose 0.2%. Real estate equities were mixed today as the Equity REIT Index gained 0.1% - boosted by a rebound from technology REITs - but 15-of-19 property sectors finished in negative territory while Mortgage REITs gained 0.4%.

Crypto has again dominated the spotlight as Bitcoin (BTC-USD) climbed to fresh record highs as the first Bitcoin ETF - which holds derivatives contracts tracking the price of bitcoin - began trading today. Nine of the eleven GICS equity sectors were higher on the day, led to the upside by the Healthcare (XLV), Utilities (XLU), and Energy (XLE) sectors. The 10-Year Treasury Yield, meanwhile, is again flirting with four-month highs at 1.64% amid a relentless rise in energy prices, which climbed again today after Russia threatened to withhold natural gas from Europe unless it was granted approval for the Nord Stream 2 pipeline.

Following better-than-expected Homebuilder Sentiment data yesterday, the Census Bureau reported today that Housing Starts and Building Permits were slightly softer than expected in September - driven primarily a pullback in multifamily construction - as supply-chain constraints lingered in September. Starts declined 1.6% from the prior month to a 1.56 million annualized rate while Permits declined 7.7% from the prior month to an annualized 1.59 million units in September. Yesterday, the NAHB reported that homebuilder confidence jumped in October, rising 4 points to 80 on strong home buyer demand and signs of some relief in supply chain headwinds in early October.

Equity REITs & Homebuilders

Today we published our Real Estate Earnings Preview. Real estate earnings season kicks off this week, and over the next month, we'll hear results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. Residential REITs and specialty REIT sectors - billboard, cannabis, and timber REITs - delivered the strongest returns over the last quarter. Large-cap technology REITs have uncharacteristically lagged. The report will discuss the major themes and metrics we'll be watching across each of the real estate property sectors this earnings season in what will surely be another newsworthy and potentially volatile several weeks for the red-hot real estate sector. We'll hear results tomorrow from Crown Castle (CCI), First Industrial (FR), Rexford (REXR), and SL Green (SLG).

Manufactured Housing: Equity LifeStyle (ELS) kicked off earnings season Monday afternoon with another stellar report, raising its full-year NOI guidance to 8.4% - an increase of 50 basis points - and its FFO outlook by another 140 basis points to 15.2%. ELS also provided preliminary 2022 guidance, noting that it expects Core MH rent growth of 4.7% and RV rent growth of 5.0%, each accelerating from the 4.2% growth projected for 2021. Consistent with the trends across the residential REIT industry, MH REITs significantly boosted their growth outlook in Q2, citing strong rental housing demand and substantial upward rent pressures. Sun Communities (SUI) will report results next week and UMH Properties (UMH) will report the following week.

Data Center: Equinix (EQIX) was among the leaders today after it announced with PGIM Real Estate an agreement to establish a $575M joint venture to develop and operate two data centers in Sydney, Australia. Under the terms of the agreement, PGIM Real Estate will control an 80% equity interest in the joint venture, and Equinix will own the remaining 20% equity interest. The joint venture is expected to close in Q4 2021, pending regulatory approval and other closing conditions. After delivering the strongest returns of any REIT sector last year, data center REITs enter earnings season as the weakest-performing sector this year as fundamentals have been largely unaffected by the pandemic and subsequent reopening - for better and worse.

Mortgage REITs

Per our Mortgage REIT Tracker, mREITs were mixed today as residential mREITs gained 0.3% and are now higher by 0.7% this week. Commercial mREITs declined 0.4% but remain higher by 0.5% this week. Franklin BSP Realty (FBRT) began trading on the NYSE today following the completion of the merger between Benefit Street Partners and Capstead Mortgage (CMO). FBRT - which will be externally managed by Benefit Street - has roughly $3 billion of assets. The average residential mREIT now pays a dividend yield of 8.48% while the average commercial mREIT pays a dividend yield of 6.5%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker, REIT Preferred stocks finished higher 0.19% today. So far in 2021, REIT Preferred stocks are higher by 11.78% on a price return basis and have produced total returns of roughly 15%. As part of the aforementioned merger, each outstanding share of Capstead’s 7.50% Series E Cumulative Redeemable Preferred Stock (CMO.PE) was converted into FBRT’s 7.50% Series E Cumulative Redeemable Preferred Stock. Over in the bond markets today, American Tower (AMT) announced that it completed its redemption of all $715.1M of its outstanding 4.70% senior unsecured notes due 2022.

Economic Data This Week

We have a jam-packed week of economic and housing data in the week ahead, continuing on Thursday when the National Association of Realtors releases Existing Home Sales data which is expected to show an acceleration back above the 6M annualized rate following a late-summer cooldown. We'll also be monitoring a flurry of Purchasing Managers Index ("PMI") data throughout the week.

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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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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