• Alex Pettee, CFA

Rebound Fades • Strong Housing Data • REIT Updates

Summary

  • U.S. equity markets finished lower Tuesday, reversing an early-session rally following the worst single-day decline since June, as stronger-than-expected housing data was offset by concerns about turmoil in Chinese markets.

  • Declining for the tenth time in the past twelve sessions, the S&P 500 slipped 0.1% today while the Mid-Cap 400 declined by 0.1% and the Small-Cap 600 declined 0.2%.

  • Real estate equities were mixed today as the Equity REIT Index finished fractionally higher with 10-of-19 property sectors in positive territory while Mortgage REITs gained 0.5%.

  • Housing Starts and Building Permits each significantly beat expectations, driven by a surge in multifamily construction activity while single-family construction activity remains constrained by supply chain headwinds.

  • Cold storage operator Americold Realty (COLD) dipped more than 8% today after it provided a downbeat outlook reflecting the impact of "unprecedented labor disruptions."

Real Estate Daily Recap

U.S. equity markets finished lower Tuesday, reversing an early-session rally following the worst single-day decline since June, as stronger-than-expected housing data was offset by concerns about turmoil in Chinese markets. Declining for the tenth time in the past twelve sessions, the S&P 500 slipped 0.1% today while the Mid-Cap 400 declined by 0.1% and the Small-Cap 600 finished off by 0.2%. The Nasdaq 100 gained 0.1%. Real estate equities were mixed today as the Equity REIT Index finished fractionally higher with 10-of-19 property sectors in positive territory while Mortgage REITs gained 0.5%.

Reversing early-session gains, six of the eleven GICS equity sectors finished lower today as investors await comments from the Federal Reserve tomorrow afternoon. Volatility in Asian markets has added to the choppiness in U.S. equity markets this week following another wave of Chinese government regulatory crackdown on several of its largest industries. Homebuilders and the broader Hoya Capital Housing Index were slightly lower today despite stronger-than-expected housing market data with housing starts and building permits significantly beating estimates despite supply chain headwinds.

The Census Bureau reported this morning that home construction activity bounced back in August as Housing Starts and Building Permits each significantly beat consensus expectations. Driven by a surge in multifamily construction activity resulting from a historic surge in rent growth over the past year, Housing Starts rose 3.9% from the prior month to a seasonally adjusted annual rate of 1.615 million, which was 17.4% above last year's levels. Building Permits rose 6.0% from last month and 13.5% from last year. Yesterday, the NAHB reported that Homebuilder Sentiment was also better-than-expectations, lifted by improving buyer traffic.

Equity REITs

Cell Towers: Today, we published Space Race Risk, which analyzed recent earnings reports and developments in the telecommunications industry. Becoming dominant players of both the telecommunications and REIT sectors through relentless growth, cell tower REITs reported another stellar "beat-and-raise" quarter with double-digit earnings growth. While the near-term technological risk is limited, the well-funded "space race" to build massive low-earth-orbit satellite networks could eventually alter the competitive positioning. The medium-term prospects for cell tower REITs remain promising, but with these REITs "priced for perfection," some caution is warranted given their potential longer-term technological risk.

Industrial: Cold storage operator Americold Realty (COLD) dipped more than 8% today after it provided a downbeat outlook, revising lower its full-year guidance reflecting the impact of ongoing pressures on current market conditions primarily driven by unprecedented labor disruptions, disruptions that fellow logistics company FedEx (FDX) echoed in their earnings call this afternoon. AFFO per share is now seen ranging between $1.15 and $1.20, compared to its prior range of $1.34 to $1.40. COLD now expects its same-store NOI growth to decline by 6% at the midpoint of its guidance range, which comes as other more conventional industrial REITs expect same-store NOI growth to grow more nearly 5% this year.

Healthcare: Ventas (VTR) announced today that it completed its acquisition of New Senior in an all-stock transaction, valued at approximately $2.3 billion, including New Senior debt assumed or repaid by Ventas. Under the terms of the merger agreement, New Senior stockholders receive 0.1561 shares of newly issued Ventas common stock for each share of SNR. Also today, Omega Healthcare (OHI) dipped 2.6% after it provided a business update that noted that three operators accounting for about 9% of the company’s estimated contractual rent and mortgage payments in Q3 2021 have stopped making rent payments in 2021 due to the COVID-19 impact on occupancy.

Mortgage REITs

Per our Mortgage REIT Tracker, mREITs bounced back today as residential mREITs were higher by 0.5% today but remain lower by 0.7% this week. Commercial mREITs climbed 0.2% today but remain lower by 1.1% on the week. On a slow day of newsflow, Granite Pointe (GPMT) and Ellington Residential (EARN) led to the upside while Capstead (CMO) and iStar (STAR) were laggards. Riding a wave of two dozen dividend hikes this year, the average residential mREIT now pays a dividend yield of 9.0% while the average commercial mREIT pays a dividend yield of 6.9%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher 0.04% today, on average, but underperformed their respective common stock issues by an average of 0.26%. So far in 2021, REIT Preferred stocks are higher by 10.49% on a price return basis and total returns of roughly 15%. The average REIT preferred pays a current yield of 5.96% and trades at a slight premium to par value.

Economic Data This Week

The jam-packed week of economic and housing data continues on Wednesday when the National Association of Realtors releases Existing Home Sales data, and then on Friday, we'll see New Home Sales data for August. We'll also hear commentary from the Federal Reserve - along with their interest rate decision - on Wednesday afternoon and we'll be monitoring a flurry of Purchasing Managers Index ("PMI") 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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