• Alex Pettee, CFA

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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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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