• Alex Pettee, CFA

Mall Earnings • Space Collision • Producer Prices Jump

Updated: Apr 10

Summary

  • U.S. equity markets finished broadly higher Friday ahead of the start of Q1 earnings season next week despite PPI inflation data this morning showing a higher-than-expected rise in producer prices.

  • Ending the week with gains of 2.7%, the S&P 500 finished higher by another 0.7% today. The Mid-Cap 400 gained 0.4% while the Small-Cap 600 gained 0.3%.

  • Real estate equities were mixed today - and lagged on the week - as the broad-based Equity REIT Indexes finished lower by 0.1% with 12-of-19 property sectors in negative territory.

  • Bankrupt mall REIT CBL Properties reported Q4 results, noting that its FFO per share plunged 61.4% for full-year 2020 while its same-store NOI dipped 21.5%. There were mild signs of improvement in early 2021.

  • Two satellites from OneWeb and SpaceX's Starlink nearly collided, which experts say could have been a major issue for orbital satellites. Cell Tower REITs face potential disruption - perhaps on the positive side - from this growing network of Low Earth Orbit ("LEO") satellites.

Real Estate Daily Recap

U.S. equity markets finished broadly higher Friday ahead of the start of Q1 earnings season next week despite PPI inflation data this morning showing a higher-than-expected rise in producer prices. Ending the week with gains of 2.7%, the S&P 500 ETF (SPY) finished higher by another 0.7% today. Mid-Cap 400 (MDY) and Small-Cap 600 (SLY) indexes gained 0.4% and 0.3% today, respectively. Real estate equities were mixed today - but lagged on the week - as the broad-based Equity REIT ETFs (VNQ) finished lower by 0.1% with 12-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) finished lower by 0.3%.

The hotter-than-expected PPI report had a relatively muted effect on inflation expectations and interest rates today as the 10-Year Treasury Yield finished higher by 3 basis points but ended the week well below its prior week close. Homebuilders and the broader Hoya Capital Housing Index rallied today ahead of a busy week of housing data next 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.

The BLS reported that U.S. producer prices increased more than expected in March as the combination of economic reopenings, ongoing supply chain issues, and the year-over-year "base effects" resulted in the largest annual gain in nearly 10 years on the headline PPI Index. Core PPI rose by 0.9% last month, which pushed its year-over-year rise to 3.5%. Longer-term inflation expectations have trended sideways over the last month as market participants are split on whether the expected jump in inflation metrics throughout this Spring will be sustained or are merely transitory effects of COVID-related disruptions to supply chains and work schedules.

Commercial Equity REITs

Malls: Bankrupt mall REIT CBL Properties (OTCPK:CBLAQ) was roughly unchanged after reporting Q4 results today. Roughly consistent with expectations and the results of other lower-productivity mall REITs, CBL reported that its FFO per share plunged 61.4% for full-year 2020 while its same-store NOI dipped 21.5%. Portfolio occupancy at the end of Q4 was 87.5%, representing a 70-basis point improvement from the sequential quarter, but a 370-basis point decline compared with 91.2% as of the prior year-end. While higher-productive mall REITs like Simon Property (SPG) see stabilization in 2021, most other mall REITs face a potentially long and uncertain road to recovery.

Cell Tower: While not directly affecting the cell tower REITs, The Verge reported today that two satellites from OneWeb and SpaceX's (SPACE) Starlink (STRLK) triggered a red alert from the U.S. Space Force's 18th Space Control Squadron of a potential collision, forcing SpaceX to manually steer the satellite to avoid the collision. Cell Tower REITs face potential disruption (perhaps on the positive side) from a growing network of Low Earth Orbit ("LEO") satellites. SpaceX has about 1,370 Starlink satellites in orbit already, while OneWeb has launched 146 satellites so far, but critics have raised concern that a space collision could set off a cascading wave of space destruction.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.5% today and ended the week lower by 0.5%. Commercial mREITs declined by 0.2% but ended the week higher by 0.5%. KKR Real Estate (KREF) announced the launch of a Series A Cumulative Redeemable Preferred Stock at $25.00 per share which will trade on the NYSE under the ticker symbol “KREF PRA.”

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.09% today, on average, and outperformed their respective common stock issues by an average of 0.60%. So far in 2021, REIT Preferred stocks are higher by 6.70% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.29% and trades at a slight discount to par value.

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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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