REIT Week • Rents Soar • Data Center Deal
U.S. equity markets were mixed Monday as investors await inflation data later this week while "meme stock mania" continued with shares of heavily-shorted stocks surging yet again.
Coming off gains of 0.6% last week, the S&P 500 finished lower by 0.1% and the Mid-Cap 400 declined by 0.2% while the Small-Cap 600 finished higher by 1.1%.
Real estate equities were among the leaders today with the Equity REIT Index rising 1.2% as REITweek - the industry's annual trade conference - kicked off with some major M&A news.
Data Center REIT QTS Realty (QTS) surged 21% after announcing that it will be acquired by Blackstone (BX) for in an all-cash deal at $78/share, representing a roughly 21% premium.
Rents continue to soar across the country, confirmed today in business updates from Invitation Homes and Essex Properties. INVH reported that rent growth on new leases soared at a record-high annual rate of 14.1% in May.
Real Estate Daily Recap
U.S. equity markets were mixed Monday as investors await inflation data later this week while "meme stock mania" continued with shares of heavily-shorted stocks surging yet again. Coming off gains of 0.6% last week, the S&P 500 (SPY) finished lower by 0.1% and the Mid-Cap 400 (MDY) declined by 0.2% while the Small-Cap 600 (SLY) finished higher by 1.1%. Real estate equities were among the leaders today as REITweek - the industry's annual trade conference - kicked off with a major acquisition. The Equity REIT Index finished higher by 1.2% with 18 of 19 property sectors in positive territory while the Mortgage REIT Index gained 1.4%.
As discussed in our Real Estate Weekly Outlook, markets remain near record-highs as concerns regarding economic "overheating" have cooled in recent weeks as the 10-Year Treasury Yield remains near three-month lows. Six of the eleven GICS equity sectors finished lower on the day, dragged on the downside by the economically-sensitive sectors including Materials (XLB), Industrials (XLI), and Financials (XLF). Residential REITs led the Hoya Capital Housing Index to gains as rents continue to soar across the country, confirmed today in business updates from single-family rental REIT Invitation Homes (INVH) and apartment REIT Essex Properties (ESS).
Commercial Equity REITs
Data Center: QTS Realty (QTS) surged 21% after announcing that it will be acquired by by Blackstone (BX) for in an all-cash deal at $78/share, representing a roughly 21% to QTS' closing stock price of $64.49 last week. Upon completion of transaction, which is expected to close in 2H 2021 - QTS will be delisted and jointly owned by Blackstone Infrastructure Partners and Blackstone Real Estate Income Trust, a non-traded REIT. Last month in our data center REIT report, we commented that "we see M&A as a potential catalyst this year" as the recent underperformance of the smaller REITs - CONE, COR, and QTS - "put them back in play" for a potential acquisition. The deal is the sixth major REIT-involved deal over the past two months.
Apartments: Essex Property (ESS) finished higher after it provided a business update in which it boosted its full-year guidance "due to improving market conditions and declining concession usage." The West Coast-focused REIT now sees full-year core FFO of $12.24 at the mid-point, implying a full-year FFO decline of -4.5% versus its prior outlook which called for a -5.1% decline. ESS also revised higher its outlook for full-year same-store revenue growth by 60 bps. Last week in Happy Landlords, Unhappy Renters, we analyzed the apartment REIT sector and discussed why rents across the country are suddenly surging at the fastest rate in a half-decade.
Single Family Rentals: Invitation Homes (INVH) finished higher after it similarly boosted it full-year FFO per share guidance range as operating metrics improved in May. INVH - which also raised its guidance last month when it reported Q1 results - raised guidance once again as it now sees AFFO growth of 13.0% this year. Before the upward revision in Q1, INVH expected growth of roughly 5% this year. Soaring rents are powering this surge as INVH reported record-high rent growth of 14.1% on new leases in May and 5.9% on renewals, translating to a 8.1% blended increase. This afternoon, we'll publish an updated report on the Single Family Rental sector that will take a deep dive into Q1 reports and the recent wave of private market activity and emergence of Property Technology companies in the red-hot rental housing sector.
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.6% after ending last week with gains of 1.4%. Commercial mREITs were higher by 2.3%, adding to last week's gains of 2.0%. TPG RE Finance (TRTX) finished higher by more than 4% today after it announced today the launch of a public offering of shares of a new Series C Cumulative Redeemable Preferred Stock and plans to use the proceeds to partially fund the redemption of all of the outstanding shares of the Company’s Series B Cumulative Redeemable Preferred Stock.
REIT Preferreds & Capital Raising
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.38% today, on average, but underperformed their respective common stock issues by an average of 1.79%. So far in 2021, REIT Preferred stocks are higher by 9.41% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.06% and trades at a slight premium to par value.
Economic Data This Week
The economic calendar slows down in the week ahead after several busy weeks, headlined by Consumer Price Index ("CPI") data on Thursday. The BLS reported last month that consumer prices recorded the largest annual increase since September 2008 last month as unprecedented levels of fiscal stimulus - much of it untargeted - have combined with surging demand from post-pandemic reopening and with supply constraints to drive a surge in prices. Consensus estimates call for a 3.4% rise in Core CPI and a 4.6% in the overall CPI index, which would each be the highest annual inflation rate in at least fifteen years. We'll also be watching Jobless Claims data on Thursday and Consumer Confidence data on Friday.
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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.