• Alex Pettee, CFA

Retail Rebound • Hotel Updates • Apartment M&A?

Summary

  • U.S. equity markets finished lower Thursday despite better-than-expected retail sales data as concern over sweeping tax hike proposals - part of a $4 trillion spending plan- continues to weigh on confidence.

  • Declining for the seventh time in the past nine sessions, the S&P 500 slipped 0.2% today while the Mid-Cap 400 and Small-Cap 600 each declined 0.2% while the tech-heavy Nasdaq gained 0.1%.

  • Retail Sales were stronger than expected in August, advancing 0.7% from the prior month as strong spending in the home furnishings and general merchandise categories offset a moderation in spending at restaurants.

  • We heard mixed business updates from hotel REITs Ashford (AHT) and Braemar (BHR). Recent TSA Checkpoint data has shown a notable decline in airline travel amid the resurgence of COVID cases since the start of August.

  • Small-cap Bluerock Residential (BRG) jumped 5% today after Blomberg reported that the firm is "exploring strategic options." The multifamily REIT owns 35 consolidated properties and has interests in 18,000 apartment units across Sunbelt markets.

Real Estate Daily Recap

U.S. equity markets finished lower Thursday despite better-than-expected retail sales data as concern over sweeping tax hike proposals - part of a $4 trillion spending plan- continues to weigh on confidence. Declining for the seventh time in the past nine sessions, the S&P 500 slipped 0.2% today while the Mid-Cap 400 and Small-Cap 600 each declined 0.2% while the tech-heavy Nasdaq gained 0.1%. Real estate equities were again among the leaders today as the Equity REIT Index gained 0.1% with 10-of-19 property sectors in positive territory while Mortgage REITs were flat.

Eight of the eleven GICS equity sectors were lower today, dragged on the downside by the Energy (XLE), Materials (XLB), and Utilities (XLU) sectors while stronger-than-expected retail sales data this morning pushed the 10-Year Treasury Yield higher by 3 basis points to close at 1.33%. Homebuilders and the broader Hoya Capital Housing Index were among the leaders today after data from Redfin (RDFN) showed continued momentum behind the housing industry with its measure of Pending Home Sales rising 6% from the prior month despite housing supply remaining near-record-low levels.

The Commerce Department reported this morning that Retail Sales were stronger-than-expected in August, advancing 0.7% from the prior month and 15.1% from last August. An outlier in an otherwise soft slate of economic data over the past month, strong spending in the home furnishings and general merchandise categories offset a moderation in spending at restaurants and at clothing retailers. Online spending also bounced back considerably with a 5.3% surge from last month after seeing its growth rate uncharacteristically slip to the lowest level in a decade last month.

Equity REITs

Apartments: Small-cap Bluerock Residential (BRG) jumped 5% today after Blomberg reported that the firm is "exploring strategic options." The multifamily REIT - which owns 35 consolidated properties and has interests in 18,000 apartment units across Sunbelt markets - is working with an adviser to weigh alternatives including a recapitalization. The company had a market capitalization of roughly $290 million as of Wednesday’s close. Including debt, it has an enterprise value of $2.47 billion. After lagging early in the pandemic, Apartment REITs have surged nearly 40% this year as rental operators across the country have been "passed the torch" of the flaming-hot housing market. Apartment rents are rising at the fastest rate on record as the pandemic-driven boom in household formations - including 1.6 million new renters - has clashed with the record-low housing supply.

Hotels: Braemar Hotels (BHR) gained 1.6% after reporting preliminary portfolio occupancy of 59.2% with RevPAR of $204.69, a decrease of 12% versus August 2019. Ashford Hotels (AHT) dipped 6% after reporting preliminary portfolio occupancy of 61.3% in August with RevPAR of $94.16, a decrease of 27% versus August 2019. Recent TSA Checkpoint data has shown a notable decline in airline travel amid the resurgence of COVID cases since the start of August. Travel activity recovered to roughly 90% of 2019-levels in early August based on a seven-day average, but has pulled back to just 70% of 2019-levels over the past week, the lowest point since May.

Mortgage REITs

Per our Mortgage REIT Tracker, residential mREITs finished lower by 0.1% today but remain higher by 0.9% this week. Commercial mREITs gained 0.2% today and are now higher by 1.3% this week. Ellington Financial (EFC) was among the leaders today after announcing that its estimated book value/share was $18.30 as of Aug.31 compared to $18.29 as of July 31. All 7 of the mREITs that declared dividends over the past 24-hours held their payouts steady: Starwood (STWD), KKR Real Estate (KREF), Blackstone Mortgage (BXMT), AG Mortgage (MITT), Ready Capital (RC), Granite Pointe (GPMT), and Ellington (EFC). The average residential mortgage REIT now pays a dividend yield of 9.0% while the average commercial mortgage REIT pays a dividend yield of 6.9%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher 0.37% today, on average, and outperformed their respective common stock issues by an average of 0.33%. So far in 2021, REIT Preferred stocks are higher by 11.14% on a price return basis. Today, National Retail (NNN) issued $450M of 3.000% senior unsecured notes due April 15, 2052 and intends to use the proceeds to redeem all of its 5.200% Series F Preferred Stock (NNN.PF).

Elsewhere in the bond markets, Boston Properties (BXP) issued $850.0M of 2.450% senior unsecured notes due 2033 in a public offering which it will use, in part, to redeem its $1.0B in 3.85% senior notes due Feb. 1, 2023. Meanwhile, apartment REITs UDR (UDR) issued$200M of 3.000% senior unsecured notes due 2031, and AvalonBay (AVB) issued $700M of 2.050% senior notes due 2032. Finally, net lease REIT Broadstone (BNL) completed its $375M listing of 2.600% senior unsecured notes due 2031.

Economic Data This Week

The economic calendar concludes on Friday with Consumer Sentiment data, which is coming off one of the largest declines on record last month, driven by concerns over inflation and the reacceleration in COVID cases in the U.S. 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: 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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