Keepin' It Real  

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Quarterly Recap • Travel Rebound • Tanger Hits ATM

mmary

  • U.S. equity markets finished mostly higher Wednesday following a slate of generally better-than-expected economic data and ahead of the unveiling of the Biden Administration's infrastructure spending program.

  • Closing the quarter within 0.5% of all-time highs, the S&P 500 finished higher by 0.4% today. The tech-heavy Nasdaq 100 jumped 1.5% today but still lagged in the first quarter.

  • Real estate equities were mostly lower today - but held onto its quarterly outperformance - as the broad-based Equity REIT ETFs declined by -0.6% today but ended Q1 with 8% gains.

  • Tanger Outlets (SKT) announced that it sold 6.9M shares through its ATM facility, resulting in an expected dilutive impact of 18 cents/share. Based on guidance provided last quarter, SKT now sees its Core FFO declining by another 5.7% this year following the 32% plunge in 2020.

  • TSA Checkpoint data showed that the recovery in domestic travel has picked-up meaningfully over the last month following a very slow recovery over the prior ten months. As a percent of 2019-levels of travel, the 7-day average climbed above 60% for the first time.

Real Estate Daily Recap

U.S. equity markets finished mostly higher Wednesday following a slate of generally better-than-expected economic data and ahead of the unveiling of the Biden Administration's infrastructure spending program. Closing the quarter within 0.5% of all-time highs, the S&P 500 ETF (SPY) finished higher by 0.4% today while the Dow Jones Industrial Average (DJI) declined by 85 points. The tech-heavy Nasdaq 100 (QQQ) jumped 1.5%, but still lagged considerably in Q1. Real estate equities were mostly lower today - but held onto its quarterly outperformance - as the broad-based Equity REIT ETFs (VNQ) declined by -0.6% today with 12-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) declined by 0.3%.

Equity markets have rebounded after a few days of volatility from the apparent implosion and fallout from the suspected liquidation trades related to Archegos Capital. The 10-Year Treasury Yield ticked lower today despite ADP Employment data this morning showing that job growth rebounded faster-than-expected in March ahead of Friday's nonfarm payrolls report which will be released to a closed equity market. Homebuilders and the broader Hoya Capital Housing Index were mixed today as softer-than-expected Pending Home Sales data resulting from record-low inventory levels was offset by data showing continued strength in mortgage demand for home purchases.

Quarterly Performance

Through one quarter of 2021, Equity REITs are higher by 8.1% while Mortgage REITs have gained 10.8%. This compares with the 6.3% advance on the S&P 500 and the 13.4% gain on the S&P Mid-Cap 400. Eighteen of the nineteen REIT sectors are in positive territory for the year, while on the residential side, all eight sectors in the Hoya Capital Housing Index are higher. At 1.75%, the 10-Year Treasury Yield has climbed 80 basis points since the start of the year and is 123 basis points above its all-time closing low of 0.52% last August, but exactly 150 basis points below its 2018-peak of 3.25%.

Commercial Equity REITs

Malls: Tanger Outlets (SKT) finished lower by 0.6% after announcing that it raised $130M in equity capital through the sale of 6.9M shares of its common stock at $19.02 apiece through its at-the-market ("ATM") equity offering program. It plans to use the capital to redeem $150M (out of $250M) of its 3.875% senior notes due December 2023. The company currently expects the 2021 net dilutive impact per share to be 18 cents to its FFO and 4 cents to Core FFO. With that revision, based on guidance provided last quarter, SKT now sees its Core FFO declining by another 5.7% this year following the 32% plunge in 2020.

Hotels: TSA Checkpoint data showed that the recovery in domestic travel has picked-up meaningfully over the last month following a very slow recovery over the prior ten months. As a percent of 2019-levels of travel, the seven day moving average climbed above 60% for the first time yesterday. This evening, we'll publish an update on the Hotel REIT sector to The REIT Forum, taking a look at Q4 earnings reports and analyzing commentary from hotel REITs on the expectations for the rebound in travel demand in 2H21.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 1.1% today and are now lower by -1.5% on the week. Commercial mREITs declined by 0.5% today and remain lower by -1.1% this week. Sachem Capital (SACH) was among the leaders today after it reported Q4 results this morning, the final mREIT to report their quarterly results. The small-cap mREIT focused on multifamily lending has been one of the strongest performing mREITs so far this year with gains of over 25% after being one of the best-performers from 2020 as well.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.29% today, on average, and outperformed their respective common stock issues by an average of 1.11%. So far in 2021, REIT Preferred stocks are higher by 5.74% on a price-return basis. The average REIT preferred currently pays a dividend yield of 6.34% and trades at a slight discount to par value.

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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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