• Alex Pettee, CFA

Inflation 31-Year High • Data Center M&A • Happy Thanksgiving

Summary

  • U.S. equity markets were mostly-higher in the pre-Thanksgiving session following a barrage of economic data this morning that showed encouraging trends in the labor and housing market but persistent inflation.

  • Real estate equities were among the leaders today with residential REITs again leading to the upside as the Equity REIT Index advanced 1.2% today with 17-of-19 property sectors in positive-territory.

  • The data center M&A boom isn't done yet. Equinix, KKR, and Blackstone are said to be among buyers considering bids for data center operator Global Switch, which owns 13 data centers.

  • Consumer prices in the US continued surging in October as the PCE Price Index - the Fed's "preferred" measure of inflation- rising more than 5% from last year driven by a 30% year-over-year surge in energy prices.

  • New Home Sales rose in October for the second consecutive month to the highest level since April as the housing market continues to exhibit the seemingly unwavering resilience that it has throughout the pandemic.

Income Builder Daily Recap

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U.S. equity markets were mostly-higher in the pre-Thanksgiving session following a barrage of economic data this morning that showed encouraging trends in the labor and housing market but persistent inflation. Climbing back into positive territory for the week, the S&P 500 finished higher by 0.3% today while the Mid-Cap 400 finished flat and the Small-Cap 600 finished lower by 0.3%. Real estate equities were among the leaders today with residential REITs again leading to the upside as the Equity REIT Index advanced 1.2% today with 17-of-19 property sectors in positive territory while Mortgage REITs gained 0.2%.

The pre-Thanksgiving barrage of economic data was generally better-than-expected as weekly Initial Jobless Claims fell sharply while Personal Income and Spending data also topped estimates and New Home Sales rose to the highest level in six months. Seven of the eleven GICS equity sectors were higher on the day, led to the upside by the Real Estate (XLRE) and Energy (XLE) sectors while the 10-Year Treasury Yield retreated by 2 basis points to close at 1.65%. Residential REITs led the Hoya Capital Housing Index to fresh highs as well on fresh data showing that rents continue to rise by double-digit rates across essentially all major markets.

Sticking on the housing theme, the Census Bureau reported that New Home Sales rose in October for the second consecutive month to the highest level since April as the housing market continues to exhibit the seemingly unwavering resilience that it has throughout the pandemic. New Home Sales increased 0.4% in October to a seasonally adjusted annual rate of 745,00, consistent with better-than-expected homebuilder sentiment data last week and strong Existing Home Sales data on Monday and comes despite ongoing supply constraints across the industry.

The BEA reported this morning that consumer prices in the US continued surging in October with the PCE Price Index - the Fed's "preferred" measure of inflation- rising more than 5% from last year - the highest rate of inflation in more than three decades. The headline PCE Index rose 0.6% in October - roughly matching expectations - while the Core PCE Index rose 0.4% from the prior month. Driving the gains was a 30% year-over-year surge in energy prices and a 5% increase in food prices - issues that have resulted in a historic plunge in consumer confidence metrics since late August which remained at decade-lows in today's report from the University of Michigan.

Equity REIT Daily Recap

Data Center: As discussed in Merger Madness, the data center M&A boom is far from complete. Equinix (EQIX), KKR & Co. (KKR) and Blackstone (BX) are said to be among buyers considering bids for data center operator Global Switch - which operates 13 facilities across Europe, Asia, and Australia. Digital Realty (DLR) and DigitalBridge (DBRG) have also reportedly expressed preliminary interest for Global Switch, according to a Bloomberg report. DLR and EQIX have been uncharacteristically quiet this year on the M&A front despite sitting on a mountain of "dry powder" as the three smaller data center REITs - COR, CONE, and QTS - were all scooped-up.

Economic Data This Week

U.S. equity and bond markets will be closed tomorrow for Thanksgiving and the NYSE will close early on Friday as well. 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 published this weekend.


We're excited to announce the launch of our new investment research service here on Seeking Alpha - Hoya Capital Income Builder. We've put together a great team of contributors from across the REIT, dividend, and ETF industry, so whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and a comprehensive suite of tools and models to help build sustainable portfolio income targeting premium dividend yields of up to 10%. And of course, subscribers receive complete access to our investment research - including reports that are never published elsewhere - from Hoya Capital and our team of contributors.

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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