• Alex Pettee, CFA

Office M&A • Mall Troubles • Crypto Crash

Summary

  • U.S. equity markets were mostly lower Tuesday as investors expressed a "risk-off" tone following last week's disappointing employment report which raised questions about the momentum behind the economic recovery.

  • Retreating from gains of 0.6% last week, the S&P 500 declined 0.4% today while the Mid-Cap 400 slipped 1.2% and the Small-Cap 600 declined 0.8%. The Nasdaq 100 gained 0.1%.

  • Real estate equities were under pressure following strong gains last week as the Equity REIT Index retreated 1.1% today with 16-of-19 property sectors in negative territory. Mortgage REITs slipped 0.9%.

  • Office REIT Columbia Property Trust (CXP) soared more than 15% today after announcing that it has agreed to be acquired by funds managed by Pimco for $3.9B, including debt.

  • Troubled mall REIT Washington Prime Group (WPG) dipped nearly 20% after announcing that it will voluntarily delist its common shares and preferred shares from the NYSE on September 29, 2021.

Real Estate Daily Recap

U.S. equity markets were mostly lower Tuesday as investors expressed a "risk-off" tone following last week's disappointing employment report which raised questions about the momentum behind the economic recovery. Retreating from gains of 0.6% last week, the S&P 500 finished lower by 0.4% today while the Mid-Cap 400 slipped 1.2% and the Small-Cap 600 declined 0.8%. The tech-heavy Nasdaq 100 eked out gains to finish at fresh records. Real estate equities were under pressure following strong gains last week as the Equity REIT Index retreated 1.1% today with 16 of 19 property sectors in negative territory while Mortgage REITs slipped 0.9%.

As discussed in our Real Estate Weekly Outlook, the "reopening trade" has hit the breaks over the last several trading sessions amid concerns over COVID, potential corporate tax hikes, and signs of softening economic data. Eight of the eleven GICS equity sectors were lower today, dragged on the downside by the Industrials (XLI) sector following commentary from paint and industrial coatings producer PPG (PPG), which warned about ongoing supply chain issues. Commodities (DJP) slipped nearly 2% today. Elsewhere, Bitcoin (BTC:USD) and the broader cryptocurrency complex slid sharply amid technological issues at several major crypto brokerage firms.

The economic calendar slows down in the holiday-shortened week ahead with Labor Day on Monday. On Wednesday, we'll see JOLTs Job Openings data for July, which is expected to show that the quantity of available jobs - nearly 9.3M - is higher than the total quantity of unemployed Americans currently seeking work - 8.4M. On Friday, we'll see some inflation data with the Producer Price Index for August, which is expected to show an 8.3% year-over-year rise as cost pressures continue to accelerate further from the record-highs set in the prior month. Investors will also be listening to Federal Reserve commentary from Fed Members Daly and Williams on Thursday.

Equity REITs

Office: Columbia Property Trust (CXP) soared more than 15% today after announcing that it has agreed to be acquired by funds managed by Pacific Investment Management Co. ("Pimco") for $3.9B, including debt. Earlier this year, CXP conducted a strategic review process to review its strategic options, including the possible sale of the company. Pimco agrees to pay $19.30 per share in cash for each share of CXP, representing a roughly 15% premium over CXP's closing share price last Friday. The transaction, one of more than a dozen major REIT M&A moves since April, is expected to close by year-end. CXP's previously declared Q3 dividend of $0.21 per share payable on Sept. 15 will be its final dividend, pending the sale.

Mall: Troubled mall REIT Washington Prime Group (WPG) dipped nearly 20% after announcing that it will voluntarily delist its common shares and its two preferred issues from the New York Stock Exchange as of September 29, 2021. WPG commented, "because [WPG] will no longer be publicly held upon its expected emergence from its previously announced Chapter 11 proceedings, the Company believes that the costs and expenses associated with the continued listing of the Common Stock and Preferred Equity, and the corresponding governance and filing requirements, are not economically justified." In Mall REITs: Fears Of Double Dip, we discussed how glimmers of hope were beginning to emerge, but dark clouds have reemerged amid a resurgence in COVID cases across the globe.

Shopping Center: Last Friday, we published Shopping Center REITs: Big Box Boom. The COVID pandemic has radically transformed consumer spending habits - perhaps permanently - shifting spending towards goods over services and towards larger-format retailers over smaller shops. While enclosed regional malls face a long and uncertain road to recovery, the outlook for open-air Shopping Center REITs has brightened considerably this year. Rent collection has fully normalized and trends in occupancy rates and leasing have been encouraging. Valuations again appear incrementally more attractive as the share price rally has cooled while organic fundamentals and external growth potential have heated up.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.9% today after finishing last week lower by 0.3%. Commercial mREITs also slipped 0.9% today after gaining 0.4% last week. On a slow day of newsflow, Sachem Capital (SACH) and Tremont Mortgage (TRMT) led to the upside while Great Ajax (AJX) and Brightspire Capital (BRSP) were among the laggards. The average residential mortgage REIT now pays a dividend yield of 9.0% while the average commercial mortgage REIT pays a dividend yield of 6.7%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.10% today, on average, and outperformed their respective common stock issues by an average of 0.80%. So far in 2021, REIT Preferred stocks are higher by 11.37% on a price return basis. The average REIT preferred pays a current yield of 5.88% and trades at a slight premium to par value. As noted above, Washington Prime (WPG) plans to delist both of its preferred issues - its Series 6.875% Series I Preferred and its 7.5% Series H Preferred - from the NYSE on September 29th.

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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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