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  • Alex Pettee, CFA

Infrastructure Deal • Fresh Records • Healthcare M&A

Summary

  • U.S. equity markets finished broadly higher Thursday on reports of a potential bipartisan deal on a slimmed-down infrastructure package that is expected to focus up to $1 trillion on hard infrastructure.

  • Closing at fresh record-highs, the S&P 500 finished higher by 0.6% today while the Mid-Cap 400 gained 1.0% and the Small-Cap 600 rallied 1.5%.

  • Real estate equities were laggards today as the Equity REIT Index finished lower by 0.2% with 13 of 19 property sectors in negative territory while Mortgage REITs gained 1.2%.

  • Reflecting the concern over inflation and shortages in many of the industries that will be stimulated by infrastructure spending, the proposed infrastructure package is a fraction of the size of earlier proposals.

  • Medical Properties Trust (MPW) announced its second large acquisition this month, purchasing five general acute care hospitals from Tenet Healthcare for about $900M. MPW has now acquired $3.4B in properties this year.

Real Estate Daily Recap

U.S. equity markets finished broadly higher Thursday on reports of a potential bipartisan deal on a slimmed-down infrastructure package that is expected to focus as much as $1 trillion on hard infrastructure. Closing at fresh record-highs, the S&P 500 finished higher by 0.6% today while the Mid-Cap 400 gained 1.0% and the Small-Cap 600 rallied 1.5%. Real estate equities were laggards today as the Equity REIT Index finished lower by 0.2% with 13 of 19 property sectors in negative territory while the Mortgage REIT Index finished higher by 1.2%.

Reflecting the concern over inflation and shortages in many of the industries that will be stimulated by infrastructure spending, the proposed infrastructure package is a fraction of the size of earlier proposals. Nine of the eleven GICS equity sectors finished higher today, led to the upside by the Financials (XLF), Communications (XLC), and Energy (XLE) sectors. Eight of the eleven GICS equity sector finished lower today, dragged on the downside by the Utilities (XLU), Materials (XLB), and Consumer Staples (XLP) sectors. Elsewhere, the Hoya Capital Housing Index gained despite pressure on homebuilders after the proposed infrastructure deal is expected to allocate less to subsidizing new home construction than previously proposals.

Commercial Equity REITs

Manufactured Housing: Today, we published Ground Zero of the Housing Shortage. Manufactured housing ("MH") REITs have been the top-performing property sector over the past decade, continuing the strong momentum into 2021. Consistent with the trends across the residential REIT industry over the past quarter, MH REITs significantly boosted their growth outlook, citing strong rental housing demand and substantial upward rent pressure. We analyzed Harvard's recently-published "State of the Nation's Housing" which concluded that the country is nearly 4-million housing units short of meeting long-term demand, a compelling backdrop for companies across the broader housing industry. We also discussed how MH REITs' amplified focus on analogous asset classes - RV parks and marinas - has provided an added growth tailwind.

Healthcare: Medical Properties Trust (MPW) announced its second large acquisition this month, purchasing five general acute care hospitals from Tenet Healthcare (THC) for about $900M. The hospitals will be leased pursuant to Medical Properties' master lease agreement with Steward, which is expected to exercise its options to extend the lease term to expire in 2041, leaving a five-year extension option remaining. MPW has now acquired more than $3.4 Billion in assets since the start of 2021. The company expects to initially fund the total cash consideration using cash on hand, but indicated that it is likely to sell some properties as well, noting that its funding strategy "includes substantial proceeds from anticipate capital recycling activity."


Hotels: RLJ Lodging Trust (RLJ) gained about 1% after providing a business update in which it outlined several potential "value creation" strategies including roughly $10M in revenue-enhancing cap-ex, $8M gained through brand conversions, and $7M in margin expansion opportunities. Yesterday, we noted that the latest TSA Checkpoint data showed that domestic travel - which bottomed last April at less than 5% of pre-pandemic levels - has recovered to around 75% of pre-pandemic levels over the past month.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.2% today and are now higher by 2.0% this week. Commercial mREITs gained 1.1% today to push their week-to-date gains to 4.3%. Colony Credit (CLNC) completed its name and ticker change to BrightSpire Capital (BRSP) and changed its principal place of business and corporate headquarters from Los Angeles to New York City. The Company will continue to be publicly traded on the New York Stock Exchange, with trading to begin under its new ticker symbol, BRSP, at market open on June 25, 2021. The common stock will bear a new CUSIP number of 10949T109.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.09% today, on average, but underperformed their respective common stock issues by an average of 0.84%. So far in 2021, REIT Preferred stocks are higher by 9.58% on a price return basis. The average REIT preferred currently pays a dividend yield of 5.90% and trades at a slight premium to par value. Yesterday afternoon, Sachem Capital (SACH) priced a new 7.75% Series A Cumulative Redeemable Preferred (SACH.PA) which is expected to begin trading on July 6. Today, Chatham Lodging (CLDT) priced a new 6.625% Series A Cumulative Redeemable Preferred (CLDT.PA).

Economic Data This Week

The busy economic calendar continues on Friday when we'll see inflation data with the PCE Price Index - the Fed's "preferred" gauge of inflation - which is expected to show that prices are rising at the fastest level in at least a decade. We'll also see Personal Income & Spending data on Friday and a flurry of PMI and sentiment data throughout the week.

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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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