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  • Alex Pettee, CFA

Housing Shortage • Crypto Crackdown • Dividend Boosts

Summary

  • U.S. equity markets were mixed Friday - leaving the broad-based averages lower for a second-straight week - on signs that emerging supply shortages and surging prices have started to impair demand.

  • Declining in four-of-five sessions this week, the S&P 500 finished lower by 0.1% today, but the Mid-Cap 400 gained 0.2% and the Small-Cap 600 rallied 0.6%.

  • Real estate equities were mixed today, but were among the best-performers on the week. The Equity REIT Index declined by 0.1% today with 10 of 19 property sectors in positive territory.

  • The "crypto crackdown" continued after the Chinese announced new regulatory measures on bitcoin mining and exchanges, sending Bitcoin lower by another 12% on the day and 23% on the week.

  • Existing Home Sales data this morning underscored the intensifying shortage across the U.S. housing market. Inventory levels plunged 20.5% from last year, sending prices surging by 19.1%.

Real Estate Daily Recap

U.S. equity markets were mixed Friday - leaving the broad-based averages lower for a second-straight week - on signs that emerging pockets of supply shortages and surging prices have started to impair aggregate demand. Declining in four-of-five sessions this week, the S&P 500 (SPY) finished lower by 0.1% today but the Mid-Cap 400 (MDY) gained 0.2% and the Small-Cap 600 (SLY) rallied 0.2%. Real estate equities were mixed today - but were among the best-performers on the week. The Equity REIT Index declined by 0.1% with 10 of 19 property sectors in positive territory while the Mortgage REIT Index declined 0.1%.

The "crypto crackdown" continued after the Chinese announced new regulatory measures on bitcoin mining and exchanges, sending Bitcoin (BTC-USD) lower by another 12% on the day and 23% on the week. Among the eleven GICS equity sectors, the defensive and sensitive segments of the market were among the leaders with Real Estate (NYSEARCA:XLRE) leading the way. We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

Existing Home Sales data this morning underscored the intensifying shortage across the U.S. housing market. Held back by historically low inventory levels, Existing Sales fell 2.7% from the prior month - the third straight month of sequential declines - but were higher by 33.9% from last year and up 20% year-to-date. Total housing inventory was down 20.5% from one year ago, representing a 2.4-month supply at the current sales pace, down from the 4.0-month supply recorded in April 2020 and near record-low levels. The median existing-home sales price surged 19.1% year-over-year to $341,600.

This report was consistent with Redfin (RDFN) data released today which showed that a record 50% of homes were sold above their listing price over the past month while inventory levels fell to new all-time lows. Nearly half of listed homes received an offer within one week while the average home sold was on the market for just 17 days. Surging home values and the shortage of homes for sale has started to impact demand as Redfin reported that pending sales for the seven-day period ending May 16 were down 10% from four weeks prior while mortgage purchase applications decreased 4% from the week earlier as households at the margins appear to be content to wait for a moderation before entering the red-hot housing market.

Commercial Equity REITs

Casino: Gaming and Leisure Properties (GLPI) finished higher by about 1% after boosting its dividend for the second time this year to $0.67/share, a 3.1% increase from its prior dividend of $0.65. So far in 2021, 57 equity REITs and 18 mortgage REITs have increased their dividend which is already above the full-year total from 2020. Earlier this week, data center REIT CoreSite Realty (COR) and office REIT Empire State Realty Trust (ESRT) each increased their dividends as well.

Malls: Yesterday, we published Mall REITs: Only The Strong Shall Survive. Despite reporting record-low occupancy rates and rental rate spreads, mall REITs have been the best-performing property sector this year, riding the vaccine-driven reopening rotation to gains of more than 40%. While rent collection rates have improved to around 90%, Q1 results showed that vacancy rates continued to climb. Simon is the lone mall REIT projecting positive FFO growth this year and has shown some "fight" and creativity in its capital allocation, sponsoring a SPAC and continuing to buy distressed retail brands. Dismal earnings reports from mall REITs came despite the strongest year for retail sales in history. Outside of Simon, the remainder of the mall sector remains in a fight for survival with an uncertain future.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.1% today but finished the week higher by 1.1%. Commercial mREITs finished lower by 0.1% as well but ended the week with gains of 1.4%. As discussed in our Earnings Recap, the average residential mREIT reported a 1.1% increase in its tangible BVP in Q1 from the prior quarter while the average commercial mREIT reported a 0.3% decline in its tangible BVPS in Q1. Residential mREITs pay an average dividend yield of 8.5% while commercial mREITs pay an average yield of 6.9%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.21% today, on average, but underperformed their respective common stock issues by an average of 0.58%. American Homes 4 Rent (AMH) priced its public offering of 16.3M common shares for gross proceeds of roughly $600M. Net proceeds will be used to repay indebtedness, to partially fund the redemption of preferred shares and for general corporate purposes. AMH has five outstanding preferred issues including a 6.5% Series D (AMH.PD) and a 6.35% Series E (AMH.PE) that it has already announced will be redeemed on June 7th.

Economic Data This Week

We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

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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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