Fed Ahead • Office M&A • Housing Heats Up
U.S. equity markets rallied Monday following the full FDA approval of the first COVID-19 vaccine and stronger-than-expected housing data, which pushed back on concerns about emerging economic softness.
Climbing to fresh record-highs following declines last week, the S&P 500 finished higher by 0.9% today while the Mid-Cap 400 gained 0.9% and the Small-Cap 600 rallied 1.2%.
Real estate equities laggards today following last week's outperformance as the Equity REIT Index slipped 0.2% with 10 of 19 property sectors in negative territory.
Small-cap City Office REIT (CIO) surged more than 20% after it announced an agreement to sell its entire San Diego life sciences portfolio for $576M, equating to $12.38 per common share.
Housing Heats Up: Existing Home Sales were stronger than expected in July, rising 2% from the prior month, marking the second straight month of gains after a pullback in late Spring and into early Summer.
Real Estate Daily Recap
U.S. equity markets rallied Monday following the full FDA approval of the first COVID-19 vaccine and stronger-than-expected housing data, which pushed back on concerns about emerging economic softness. Climbing to fresh record-highs following declines last week, the S&P 500 finished higher by 0.9% today while the Mid-Cap 400 gained 0.9% and the Small-Cap 600 rallied 1.2%. Real estate equities laggards today following last week's outperformance as the Equity REIT Index slipped 0.2% with 10 of 19 property sectors in negative territory while Mortgage REITs gained 1.1%.
As discussed in our Real Estate Weekly Outlook, all eyes will be on the Fed in the week ahead as investors expect to hear officials begin to back off their tapering plans during their annual Jackson Hole Symposium given the recent COVID resurgence. Eight of the eleven GICS equity sectors were higher on the day, led to the upside by the Energy (XLE) sector, which bounced back following steep declines last week. Real estate technology and brokerage firms led the way in the Hoya Capital Housing Index today after Existing Home Sales data showed a reacceleration in sales following a Spring slowdown.
On that point, the National Association of Realtors reported that Existing Home Sales were stronger than expected in July, rising 2% from the prior month to a 5.99 seasonally adjusted annual rate, marking the second straight month of gains after a pullback in late Spring and into early Summer. Historically tight housing supply levels have eased just a bit as additional homes have come to market, helping to fuel the recent uptick in sales over the past two months. The inventory of homes at the end of July stood at 1.32 million - 12% below last year - but above the lows in early 2021 of just 1.03 million.
The busy week of economic and housing data continues on Tuesday with New Home Sales which is expected to show that sales have picked up modestly as supply chain constraints have eased. Investors will be closely monitoring the Federal Reserve's annual Jackson Hole Symposium on Wednesday, looking for clues into changes in the Fed's outlook in light of the recent COVID resurgence. We'll see inflation and consumer spending data on Friday with the PCE Price Index - the Fed's "preferred" gauge of inflation - expected to show that consumer prices rose at the fastest rate in decades in July as well as Personal Income & Spending data.
Office: Small-cap City Office REIT (CIO) surged more than 20% after it announced an agreement to sell its entire San Diego life sciences portfolio for $576M, equating to $12.38 per common share. The sale and redeployment of capital will allow CIO to "elevate the quality of our office portfolio through acquisitions across some of the highest employment and population growth cities in the south and west." The northern part of the portfolio is scheduled to close in December 2021 for $395M and the southern portion is scheduled to close in February 2023 for $181M. The company can accelerate either closing date to fit with redeployment opportunities. CIO was one of just seven office REITs to record positive FFO growth last year.
Net Lease: Alpine Income (PINE) - which IPOed last year - advanced 1% after it boosted its dividend for the third time this year, declaring a $0.255/share quarterly dividend, a 2% increase from prior dividend of $0.250 and representing a forward yield of roughly 5.51%. As noted in our State of the REIT Nation report last week, 78 equity REITs have now raised their dividend thus far in 2021 while an additional 20 mortgage REITs have boosted their payouts. Despite the increases this year, REIT dividend payout ratios remain historically low, indicating embedded growth.
Malls: Last Friday, we published Fears of Double Dip. Glimmers of hope were beginning to emerge for the battered mall REIT sector, which has soared 50% this year on signs of stabilizing in occupancy rates and normalizing rent collection. High-frequency activity data - including TSA Checkpoint data, Open Table reservation data, Apple mobility data, and the Dallas Fed Mobility Index suggest that economic reopenings have stalled - and even reversed in some areas - amid this "fourth wave" of the pandemic. Despite seemingly reasonable valuations, we believe that risks to the mall REIT sector remain skewed to the downside.
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.1% today, rebounding from declines of 1.4% last week. Commercial mREITs gained 0.5% today following declines of 1.0% last week. The average residential mREIT pays a dividend yield of 9.0% while the average commercial mREIT pays a dividend yield of 6.9%.
REIT Preferreds & Capital Raising
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.10%, on average, but underperformed their respective common stock issues by an average of 1.05%. So far in 2021, REIT Preferred stocks are higher by 9.07% on a price return basis. The average REIT preferred pays a current yield of 6.00% and trades at a slight premium to par value.
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.