Keepin' It Real  

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

REIT M&A • Fresh Records • Infrastructure Plan

Summary

  • U.S. equity markets rallied Thursday to fresh record-highs ahead of tomorrow's nonfarm payrolls report as the recent stabilization in long-term interest rates has temporarily relieved concerns about near-term overheating.

  • Closing with weekly gains of 1.2%, the S&P 500 finished higher by 1.2% today while the Dow Jones Industrial Average jumped 172 points. The tech-heavy Nasdaq 100 jumped 1.7%.

  • Real estate equities were among the leaders as the broad-based Equity REIT ETFs (VNQ) gained 1.9% with 18-of-19 property sectors in positive territory while the Mortgage REIT ETFs gained 0.3%.

  • Brookfield Asset Management (BAM) announced that it reached an agreement with Brookfield Property Partners (BPY) - and by extension Brookfield Property REIT (BPYU) - to acquire all of the units that it doesn't already own.

  • The deal represents a 2% premium to yesterday's close. BPY and BPYU each finished lower on the day. BPY unitholders and holders of BPYU will not receive further quarterly distributions on their securities.

Real Estate Daily Recap

U.S. equity markets rallied Thursday to fresh record-highs ahead of tomorrow's nonfarm payrolls report as the recent stabilization in long-term interest rates has temporarily relieved concerns about near-term overheating. Closing with weekly gains of 1.2%, the S&P 500 ETF (SPY) finished higher by 1.1% today while the Dow Jones Industrial Average (DJI) jumped 172 points. Real estate equities were among the leaders as the broad-based Equity REIT ETFs (VNQ) gained 1.9% with 18-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained by 0.3%.

Eight of the eleven GICS equity sectors finished higher on the day, led to the upside today by the Energy (XLE) and Technology (XLK) sectors. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders today, boosted by analyst calls that the Biden administration's infrastructure plan could be particularly beneficial to the housing industry. 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.

Commercial Equity REITs

Malls: Brookfield Asset Management (BAM) announced that it reached an agreement with Brookfield Property Partners (BPY) - and by extension Brookfield Property REIT (BPYU) - to acquire all of the limited partnership units of BPY that it doesn't already own for $18.17 per unit, representing a total consideration of $6.5B. Each BPY unitholder can choose $18.17 in cash, 0.3979 of a BAM class A share, or 0.7268 of a BPY preferred unit, per BPY share, subject to pro-ration. The offer represents an increase of 10%, including the appreciation of BAM class A shares, over the non-binding proposal made by BAM on Jan. 4, 2021, a 26% premium to BPY's unit price on Dec. 31, 2020 and a 6% premium to the average price of BPY units since the announcement was made on Jan. 4. BPY unitholders and holders of BPYU will not receive further quarterly distributions on their securities.

Earlier this week, we published Cell Tower REITs: 5G Dominance. Emerging from relative obscurity early last decade, Cell Tower REITs have developed into dominant players of both the telecommunications and real estate sectors through relentless growth. The single largest property sector, three Cell Tower REITs now account for almost a fifth of the total REIT market value and control nearly 75% of wireless communication infrastructure in the U.S. After uncharacteristically lagging early this year, Cell Tower REITs - along with other "essential" property sectors across the technology and housing sectors - have surged over the past three weeks. Cell Tower REITs delivered another stellar year in 2020 with FFO growth of nearly 9% with no signs of slowing.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.7% today to close the week with 0.3% gains. Commercial mREITs gained 1.3% today to end the week higher by 0.2%. Chimera Investment (CIM) finished higher by 1.0% after providing a business update in which it noted that it sponsored four mortgage loan securitizations totaling $2.62B and paid off a $400M loan secured by certain mortgage-backed securities in March. Sachem Capital (SACH) was higher by 2.1% today after it declared a $0.12/share dividend, in line with its previous rate, representing a forward yield of roughly 9.2%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.67% today, on average, but underperformed their respective common stock issues by an average of 1.20%. After the approval of the previously discussed Brookfield consolidation and related transactions by BPY unitholders, it's expected that Brookfield 6.375% Series A Preferred Stock (BPYUP) will be redeemed at its par value of $25 per share plus any accrued and unpaid dividends. Also today, as previously announced, Stag Industrial's 6.875% Series C Cumulative Redeemable Preferred Stock (STAG.PC) was redeemed.

Over in the bond markets, Empire State Realty (ESRT) announced that it closed on an $850M, four-year revolving credit agreement that replaces an existing undrawn credit facility that was set to mature on Aug. 29, 2021. The new facility, which has an initial maturity of March 31, 2025 has a sustainability-linked pricing mechanism that reduces the borrowing spread if certain benchmarks are achieved this year. Elsewhere, Safehold (SAFE) announced that it replaced its existing $600M secured revolving credit facility with a new $1B unsecured revolving credit facility. The new facility will bear interest at a rate of LIBOR plus 100 basis points, a 30 basis point savings from the prior facility.

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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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