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  • Alex Pettee, CFA

Risk-On • Bitcoin Bounce • REIT Earnings Updates

Summary

  • U.S. equity markets rallied for the second straight day Wednesday following Monday's sell-off as a solid slate of corporate earnings reports offset concerns over a reacceleration in global COVID cases.

  • Pushing back into positive territory on the week, the S&P 500 gained 0.8% today while the Mid-Cap 400 rallied 1.3% and the Small-Cap 600 advanced 1.6%.

  • Real estate equities were led by a rebound from COVID-sensitive property sectors today as the Equity REIT Index finished flat with 10-of-19 property sectors in positive-territory while Mortgage REITs gained 1.5%.

  • Homebuilder NVR reported that its EPS nearly doubled and homebuilding revenues jumped by 40% from last year, driven by a 32% unit increase in home deliveries combined with a 20% increase in home prices. Margins improved considerably despite soaring costs.

  • REIT earnings season heats-up this afternoon with reports from industrial REITs Rexford Industrial (REXR) and First Industrial (FR); office REIT SL Green (SLG); and cell tower REIT Crown Castle (CCI).

Real Estate Daily Recap

U.S. equity markets rallied for the second straight day Wednesday following Monday's sell-off as a solid slate of corporate earnings reports offset concerns over a continued reacceleration in global COVID cases. Pushing back into positive territory on the week, the S&P 500 gained 0.8% today while the Mid-Cap 400 rallied 1.3% and the Small-Cap 600 advanced 1.6%. Real estate equities were led by a rebound in the COVID-sensitive property sectors today as the Equity REIT Index finished flat with 10-of-19 property sectors in positive territory while Mortgage REITs rallied another 1.5%.

It was another "risk-on" day across financial markets as the 10-Year Treasury Yield jumped 7 basis points while the Crude Oil and Gasoline ETNs jumped nearly 4% while Bitcoin (BTC:USD) rebounded from its recent slump with 6% gains following comments from Elon Musk and other investors during a cryptocurrency conference. Eight of the eleven GICS equity sectors were higher today, led to the upside once again by the economically sensitive sectors including Energy (XLE), Financials (XLF), and Materials (XLB). Homebuilders and the broader Hoya Capital Housing Index delivered another strong day following solid earnings results from NVR and ahead of Existing Home Sales data tomorrow morning.

Homebuilder NVR (NVR) was little changed today after reporting Q2 earnings results this morning that were roughly in line with estimates. NVR reported that its EPS nearly doubled and homebuilding revenues jumped by 40% from last year, driven by a 32% unit increase in home deliveries combined with a 20% increase in home prices. NVR continues to sell homes faster than they can be built as its backlog remained near record-highs. Critically, despite soaring materials prices, NVR reported a 340 basis point increase in gross margins to 22.6% and record-high adjusted operating margins. DR Horton (DHI) and Tri Pointe (TPH) report results tomorrow morning.

Commercial Equity REITs

As discussed in our Real Estate Earnings Preview published earlier this week, REIT earnings season kicks off this week, and over the next month, we'll hear results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. REITs enter second-quarter earnings season as the best-performing asset class this year with total returns over 25%. Residential REITs have been the positive standouts over the last quarter following a slate of impressive Q1 earnings results and recent data showing a historic surge in apartment and single-family rents. This afternoon, we'll hear results from Rexford Industrial (REXR), First Industrial (FR), SL Green (SLG), and Crown Castle (CCI).

Mall: Brookfield Property Partners (BPY) - and by extension Brookfield Property REIT (BPYU) - received final regulatory approval for its pending acquisition by Brookfield Asset Management (BAM) with the transaction expected to close next Monday. As expected, BPY will redeem all of its outstanding 6.375% Series A Preferred (BPY.PA) on August 19th. Announced back on April 1, this agreement was the first of eight major REIT M&A deals announced so far this year. Earlier this week, shopping center REITs Kite Realty (KRG) and Retail Properties (RPAI) announced plans to merge into the fifth-largest shopping center REIT.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.7% today and are now higher by 1.9% on the week. Commercial mREITs gained 1.8% today and are now higher by 1.7% this week. mREIT earnings season kicks off next week with results from AGNC Investment (AGNC), Apollo Commercial (ARI), and KKR Real Estate (KREF) on Monday. Yesterday evening, we published our Mortgage REIT Earnings Preview report on The REIT Forum which will be summarized in a report on Seeking Alpha later this week.


REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.02% today, on average, and underperformed their respective common stock issues by an average of 1.56%. So far in 2021, REIT Preferred stocks are higher by 9.15% on a price return basis. The average REIT preferred pays a current yield of 5.96% and trades at a slight premium to par value. National Storage (NSA) was under pressure today after launching a secondary offering of 8.8 million shares of common stock, raising $450m to repay amounts outstanding under its revolving line of credit, on which the Company expects to redraw from time to time to invest in future acquisitions of self storage properties.

Economic Data This Week

The jam-packed slate of housing data and earnings reports continues on Thursday when we'll see Existing Home Sales data for June which is also expected to show an increase from the prior month despite a record-low quantity of houses for sale as soaring rents and a fresh leg lower in mortgage rates spark another wave of home buying activity. We'll also be watching Jobless Claims data on Thursday and Purchasing Managers' Index ("PMI") 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.

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