Keepin' It Real  

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

REITs Gain • Prisons Plunge • Vaccination Progress

Summary

  • U.S. equity markets were mixed Wednesday on a quiet day as investors look ahead to inflation data on Friday and await the start of the first-quarter earnings season next week.

  • Extending its week-to-date gains to roughly 1.5%, the S&P 500 ETF (SPY) finished higher by 0.1%, but the Mid-Cap 400 and Small-Cap 600 indexes pulled back about 1% each.

  • Real estate equities were modestly higher today despite a plunge from Prison REITs as the broad-based Equity REIT Indexes finished fractionally higher by 0.3% with 14-of-19 property sectors in positive-territory.

  • Prison REIT GEO Group (GEO) plunged 20% today after its board immediately suspended the company's quarterly dividend payments and stated that it will "undertake an evaluation of GEO's structure as a REIT."

  • Senior housing REIT New Senior (SNR) reported that occupancy trends have "improved considerably" as 81% of residents are now vaccinated, driving a 91% plunge in COVID cases.

Real Estate Daily Recap

U.S. equity markets were mixed Wednesday on a quiet day as investors look ahead to inflation data on Friday and await the start of the first-quarter earnings season next week. Extending its week-to-date gains to roughly 1.5%, the S&P 500 ETF (SPY) finished higher by 0.1%, but the Mid-Cap 400 (MDY) and Small-Cap 600 (SLY) indexes pulled back about 1% each. Real estate equities were modestly higher today despite a plunge from Prison REITs as the broad-based Equity REIT ETFs (VNQ) finished fractionally higher by 0.3% with 14-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) finished lower by 0.2%.

Bond markets were equally quiet today as the 10-Year Treasury Yield was flat at 1.65% - below its recent closing high last week of 1.75%. Five of the eleven GICS equity sectors were higher on the day, led to the upside by the Communications (XLC), Technology (XLK), and Financials (XLF) sectors while Materials (XLB) lagged. Within the Hoya Capital Housing Index, a strong day from residential REITs was offset by a pull-back from homebuilders following MBA data showing that mortgage rates ticked higher last week, but demand for home purchase loans was still 51% higher from last year.

Commercial Equity REITs

Today, we published Cannabis REITs: Still Flying High. The emerging Cannabis REIT sector has been far and away the best-performing property sector since the start of 2019, soaring more than 150% in 2020 following 70% gains the prior year. The momentum has continued this year after New York became the 15th state to fully legalize recreational marijuana. An additional 20 states allow medical usage, collectively covering 70% of the population. The ongoing federal prohibition - and the resulting limit on access to traditional banking - has forced cultivators and retailers to turn to alternative sources for capital, including cannabis REITs. IN the report, we discussed Innovative Industrial (IIPR), small-cap Power REIT (PW), and the newly-listed cannabis REIT AFC Gamma (AFCG).

Prisons GEO Group (GEO) plunged 20% today after its board immediately suspended the company's quarterly dividend payments and stated that it will "undertake an evaluation of GEO's structure as a REIT." We warned in Prison REITs: The End Is Near that GEO "likely isn't far behind" fellow private prison owner CoreCivic (CXW), which made a similar announcement last year before ultimately deciding to transition from a REIT into a traditional c-corporation. We also warned that private prisons were facing a potential existential crisis if Democrats swept the 2020 Elections, who have pledged to abolish the Federal use of private prisons.

Healthcare: Senior housing REIT New Senior (SNR) provided a business update yesterday afternoon in which it noted that "monthly occupancy trends have improved significantly" which echoed similar comments earlier in the week from Welltower (WELL). SNR reported just 24 new COVID cases in March – down 91% from the full month peak in December with the trend continuing into April. SNR reported that vaccine participation continues to be a major focus and currently 81% of residents and 51% of associates have been vaccinated. March leads were up 113% since the low in April 2020, and were at the highest point since start of the pandemic.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished fractionally higher today but remain lower by -0.5% on the week. Commercial mREITs gained 0.1% today and are now flat this week. On a slow day of newsflow, ACRES Realty (ACR) and Ellington Financial (EFC) led to the upside while Hannon Armstrong (HASI) and Arlington Asset (AAIC) were the laggards.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.19% today, on average, and outperformed their respective common stock issues by an average of 0.41%. So far in 2021, REIT Preferred stocks are higher by 6.81% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.28% and trades at a slight discount to par value. Over in the bond markets, CoreCivic (CXW) announced that it plans to offer $400m in senior unsecured notes due 2026, using the proceeds to redeem all $250M of outstanding 5.00% senior notes due 2022.

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