• Alex Pettee, CFA

REITs Rally • Crypto Volatility • Week Ahead Preview

Summary

  • U.S. equity markets were broadly higher Monday following two weeks of declines ahead of a busy week of economic data while investor attention remains focused on extreme volatility in cryptocurrency markets.

  • Following declines of 0.4% last week, the S&P 500 finished higher by 1.0% today while Mid-Caps gained 0.5% Small-Caps rose 0.4%. The tech-heavy Nasdaq 100 jumped 1.7%.

  • After leading the way last week, real estate equities were again among the leaders today as the Equity REIT Index rallied 1.2% with 17 of 19 property sectors in positive territory.

  • Cryptocurrencies have been a particular focus over the past two weeks as a regulatory crackdown sent Bitcoin plunging last week, but prices of the digital tokens rebounded today.

  • The busy week of economic data is highlighted by New Home Sales and Case Shiller Home Price Index on Tuesday, Pending Home Sales on Thursday, and PCE Inflation data on Friday.

Real Estate Daily Recap

U.S. equity markets were broadly higher Monday following two weeks of declines ahead of a busy week of economic data while investor attention remains focused on extreme volatility in cryptocurrency markets. Following declines of 0.4% last week, the S&P 500 (SPY) finished higher by 1.0% today while the Mid-Cap 400 (MDY) gained 0.5% and the Small-Cap 600 (SLY) rose 0.4%. The tech-heavy Nasdaq 100 (QQQ) jumped 1.7%. After leading the way last week, real estate equities were again among the leaders today as the Equity REIT Index rallied 1.2% with 17 of 19 property sectors in positive territory while the Mortgage REIT Index gained 0.6%.

As discussed in our Real Estate Weekly Outlook, cryptocurrencies have been a particular focus over the past two weeks as a regulatory crackdown sent Bitcoin (BTC-USD) plunging last week, but prices of the digital tokens rebounded today. Ten of the eleven GICS equity sectors finished higher on the day, led to the upside by the Communications (XLC) and Technology (XLK) sectors while the Utilities (XLU) sector was the laggard. Homebuilders and the broader Hoya Capital Housing Index were higher as well ahead of a jam-packed week of housing and economic data in the week ahead.

On Tuesday, we'll see New Home Sales for April which is expected to show a modest pull-back after a record start to the year as some builders have been forced to delay projects or slow their sales pace due to supply chain shortages and surging prices of construction materials. We'll also see home price data from Case Shiller and the FHFA tomorrow which is expected to show another month of double-digit annualized price appreciation as robust demand clashes with historically low housing supply. On Friday, we'll see the PCE Price Index, the Fed's preferred measure of inflation, as well as Personal Income and Spending data for April.

Commercial Equity REITs

Today, we published our quarterly State of the REIT Sector report on The REIT Forum. REITs recorded a sequential improvement across all critical metrics in Q1, powering a historic wave of dividend growth in early 2021. The Equity REIT Index has fully-recovered their pandemic declines on a total return basis, but several harder-hit property sectors are far from fully-recovered. REITs' strong balance sheets and access-to-capital prevented the type of shareholder dilution that resulted in a "lost decade" for REITs from the GFC. REITs are no longer "cheap," but that may be a good thing as premium valuations in the public markets have revived the "animal spirits" with a wave of M&A and private-to-public acquisitions in early 2021.

Industrial: After the close today, Rexford Industrial (REXR) announced that it plans a secondary offering of 9M shares of its common stock which will raise roughly $500m in proceeds. REXR intends to use the proceeds to fund future acquisitions, developments and/or redevelopment activities. REITs showed signs in late 2020 that they are back in "growth mode," and we project that 2021 will ultimately be the biggest year for acquisitions since 2016 given the sector's favorable valuations and ample access to capital.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.3% today after gaining 1.1% last week. Commercial mREITs finished higher by 0.6% after recording gains of 1.4% last week. As discussed in our Earnings Recap, the average residential mREIT reported a 1.1% increase in its tangible BVPS in Q1 from the prior quarter while the average commercial mREIT reported a 0.3% decline in its tangible BVPS in Q1. Residential mREITs pay an average dividend yield of 8.5% while commercial mREITs pay an average yield of 6.9%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.08% today, on average, but underperformed their respective common stock issues by an average of 0.58%. So far in 2021, REIT Preferred stocks are higher by 7.06% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.08% and trades at a slight premium to par value.

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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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