Rebound Rally • Hotel M&A • REIT Dividend Hike
U.S. equity markets were broadly higher Thursday - climbing back into positive territory for the week - following dovish Fed commentary and amid optimism that issues in China can be contained.
Rallying for the second-straight day following a rough start of the week, the S&P 500 gained 1.2% today while the Mid-Cap 400 rallied by 1.4% and the Small-Cap 600 advanced 1.6%.
Real estate equities were mixed today as the Equity REIT Index finished lower by 0.2% with 12-of-19 property sectors in positive territory while Mortgage REITs advanced 0.4%.
Hotel REIT Condor Hospitality (CDOR) surged more than 10% today after it entering into an agreement with Blackstone (BX) to sell its entire portfolio of hotels in a $305M all-cash transaction.
Timber REITs rallied after Weyerhaeuser (WY) announced yesterday a new $1B stock buyback authorization and a $0.50/share supplemental dividend while forecasting another "meaningful supplemental dividend" in Q1 of 2022.
Real Estate Daily Recap
U.S. equity markets were broadly higher Thursday - climbing back into positive territory for the week - following dovish Fed commentary and amid optimism that issues with troubled Chinese companies can be contained. Rallying for the second-straight day following a rough start of the week, the S&P 500 gained 1.2% today while the Mid-Cap 400 rallied by 1.4% and the Small-Cap 600 advanced 1.6%. Real estate equities were mixed today as the Equity REIT Index finished lower by 0.2% with 12-of-19 property sectors in positive territory while Mortgage REITs advanced 0.4%.
Nine of the eleven GICS equity sectors finished higher today, led to the upside by the Energy (XLE) and Financials (XLF) sectors. The 10-Year Treasury Yield climbed above 1.40% for the first time since July following a dovish long-term interest rate outlook from the Fed yesterday and on relief over progress on containing the fallout from issues with Chinese developer Evergrande. Homebuilders and the broader Hoya Capital Housing Index advanced ahead of New Home Sales data on Friday morning and on data from the Federal Reserve showing that household net worth surged to fresh records in Q2 driven by $1.2 trillion in net worth of real estate assets.
Hotel: Condor Hospitality (CDOR) surged more than 10% today after it entering into an agreement with Blackstone (BX) to sell its entire portfolio of hotels in a $305M all-cash transaction, which is expected to be completed in Q4. Proceeds from the sale of the hotel portfolio to be distributed to shareholders in one or more liquidating distribution installments. With all of its assets now sold, the company has also adopted a Plan of Liquidation and Dissolution which indicates an orderly wind-down of its business affairs. Since CDOR announced on June 21 that it would "evaluate its strategic alternatives," the stock has gained roughly 33%, significantly outperforming its hotel REIT peers, which have been under pressure amid a notable decline in airline travel amid the resurgence of COVID cases since the start of August.
Timber: Yesterday, Weyerhaeuser (WY) announced a new $1B stock buyback authorization and a $0.50/share interim supplemental dividend. The new repurchase program, which replaces a $500M program in place since February 2019, represents roughly 4% of Weyerhaeuser's market cap. WY also announced that it will invest $1B to grow its timberlands portfolio by year-end 2025, and target 5% annual growth in organic lumber production to serve increasing market demand. Last year, WY implemented a "base plus variable supplemental" dividend framework. Under this framework, the company expects to supplement its quarterly dividend with a variable return of cash to achieve a targeted total annual return to shareholders of 75-80% of AFFO. Moving forward, WY "expects to pay the entirety of our supplemental dividend on an annual basis in the first quarter..and we look forward to paying a meaningful supplemental dividend in the first quarter of 2022."
Industrial: Rexford Industrial (REXR) was under pressure after announcing a secondary common stock offering of 9.6M shares to fund its previously announced acquisition of an 83-acre industrial property in Los Angeles County. Safehold (SAFE) gained more than 5% after it priced an upsized public offering of 2.2M common shares at $76.00/share for total proceeds of $167M. We've seen a flurry of REIT equity issuance over the past several weeks. While typically resulting in near-term pressure on stock valuations, we've found that pullbacks related to routine secondary equity offerings often prove to be an effective "entry point" into many of the highest-quality REITs.
Cell Towers: Earlier this week, 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.
Per our Mortgage REIT Tracker, mREITs were mostly higher today as residential mREITs gained 0.3% to push their week-to-date gains to 0.7%. Commercial mREITs climbed 0.6% today and are now higher by 0.1% this week. Yesterday, Redwood Trust (RWT) launched a securitization that utilizes blockchain-based technology. The $450M securitization is backed by 497 jumbo residential loans and is partnering with Liquid Mortgage, a digital asset and data platform in which Redwood previously acquired a minority interest, to use blockchain technology to provide end users with "timely reporting of loan-level payments" on their mortgage loans. In our Single Family Rental REIT report, we discuss the emergence and importance of property technology across the residential and commercial real estate sectors.
REIT Preferreds & Capital Raising
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower 0.01% today, on average, but underperformed their respective common stock issues by an average of 0.56%. So far in 2021, REIT Preferred stocks are higher by 11.01% on a price return basis and total returns of roughly 15%. Over in the bond markets today, EPR Properties (EPR) announced that it will amend and restate its $1B four-year senior unsecured revolving credit facility. Medical Properties (MPW) priced €500M of 0.993% senior notes due 2026. CoreCivic (CXW) priced a $225M upsized offering of 8.25% senior unsecured notes due 2026.
Economic Data This Week
The busy week of economic data concludes on Friday with New Home Sales data for August. 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.
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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.
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.