Inflation Peaks • Simon's SPAC • Housing Heats Up
Summary
U.S. equity markets were mostly higher Wednesday after inflation data showed signs of moderation in soaring consumer price levels, potentially giving the Fed some cushion to hold off on tapering monetary stimulus.
Pushing back into positive territory for the week, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 rallied 0.8% and the Small-Cap 600 gained 0.7%.
Real estate equities were among the leaders today as the Equity REIT Index gained 0.6% with 17 of 19 property sectors in positive territory while Mortgage REITs gained 0.4%.
The BLS reported this morning that consumer prices continued to rise near the fastest annual rate in decades in July, but showed some signs of moderation following three of the hottest months on record from April through June.
The SPAC sponsored by Simon Properties (SPG) is reportedly in talks to acquire security services provider Kastle Systems and take the firm public. Kastle provides security solutions including access control and video surveillance to commercial properties.
Real Estate Daily Recap
U.S. equity markets were mostly higher Wednesday after inflation data showed signs of moderation in soaring consumer price levels, potentially giving the Fed some cushion to hold off on tapering monetary stimulus. Pushing back into positive territory for the week, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 rallied 0.8% and the Small-Cap 600 gained 0.7%. The tech-heavy Nasdaq 100 slipped 0.2%. Real estate equities were among the leaders today as the Equity REIT Index gained 0.6% with 17 of 19 property sectors in positive territory while Mortgage REITs gained 0.4%.
Ten of the elven GICS equity sectors finished higher on the day, led to the upside by the Materials (XLB), Industrials (XLI), and Financials (XLF) sectors while the 10-Year Treasury Yield remained steady today at 1.34%. Homebuilders and the broader Hoya Capital Housing Index rallied today following several analyst upgrades and on data showing a jump in mortgage applications with refinance activity climbing to the highest level since February 2021 and purchase applications rising on a week-over-week basis for the first time in five weeks following a modest early-summer cooldown.
Inflation Shows Signs of Peaking
The BLS reported this morning that consumer prices continued to rise near the fastest annual rate in decades in July, but showed some signs of moderation following three of the hottest months on record from April through June. Core Consumer Prices - which excludes food and energy - rose 0.36% in July and 4.23% from last year, cooling a bit from the multi-decade highs set last month which was the largest annual increase since 1991. The headline CPI Index, meanwhile, rose 0.47% from last month and 5.28% from last year, which was roughly in-line with consensus estimates.
It's too soon to declare victory over soaring inflation rates, however, as the effects of soaring rents and home values have just begin to filter into the data. The CPI: Shelter index rose 0.43% from the prior month - the second highest monthly rise since 2005 - but the annual rise remains significantly understated at just 2.6%. The BLS' methodology only collects shelter data every six months while most other components are sampled monthly, so the Shelter Index has only begun to reflect the historic surge in home values and rents seen through the first half of 2021.
Real Estate Earnings Updates
Mall: The Special Purpose Acquisition Vehicle ("SPAC") sponsored by Simon Properties (SPG) is reportedly in talks to acquire security services provider Kastle Systems and take the firm public. Simon's SPAC raised $345 million in its IPO in February, with the goal of targeting a company "at the intersection of real estate and technology." Kastle Systems provides security solutions including access control, video surveillance, visitor management, identity management and other services to more than 2M people across 10,000+ locations globally, according a press release in May. This would be the first deal from the pool of four REIT-sponsored SPACs which include entities launched by Alexandria Real Estate (ARE), Lamar Advertising (LAMR), and Sachem Capital (SACH).
Data Center: On the topic of SPACs, yesterday we published Go Big or Go Home where we discussed recent M&A developments in the data center sector. Cyxtera (CYXT) completed its SPAC listing last month, while Switch (SWCH) now appears poised to convert to a REIT. As predicted early this year, we've seen a boom in data center M&A and IPO activity as Blackstone will take QTS Realty (QTS) private, but several new REIT players have recently emerged. Meanwhile, Colony Capital completed its "digital transformation" and rebranded as DigitalBridge (DBRG). With Digital Realty (DLR) and Equinix (EQIX) sitting on ample dry powder, we suspect the M&A boom is just getting started and see consolidation as a potential catalyst and necessary to regain pricing power from the hyperscale giants including Amazon (AMZN) and Google (GOOGL).
REIT Preferreds & Capital Raising
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.41% today, on average, and underperformed their respective common stock issues by an average of 0.50%. Public Storage (PSA) priced 5 million shares of a new 3.95% Series Q Preferred Stock, raising $125 million and expects to use the net proceeds for to fun the potential redemption of its 4.900% Series E which are redeemable as of October 14, 2021. Over in the bond markets, Office Properties Income (OPI) priced $350 million of 2.40% senior notes due 2027 to redeem its 4.15% Senior Notes due 2022.
Economic Data This Week
Inflation data highlights this week's economic calendar, continuing on Thursday, when we'll see the Producer Price Index which is expected to show a 7.4% year-over-year rate in July, which would be the highest on record. We'll then get our first look at Consumer Sentiment data for early August, which has waned in recent months amid consumer concern over inflation.
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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.