• Alex Pettee, CFA

Strong Week For REITs • PropTech SPAC • Home Sales Surge

Summary

  • U.S. equity markets rallied to close on the cusp of fresh record-highs Friday, rebounding from yesterday's tax-hike-driven selloff as housing data this morning showed continued strength behind the economic rebound.

  • Erasing its losses for the week, the S&P 500 gained 1.1% today while the Mid-Cap 400 rallied 1.7% and the Small-Cap 600 jumped by 1.9%.

  • Real estate equities were the top-performing equity sector this week following a strong start to Q1 earnings season. The Equity REIT Index gained 0.6% today and nearly 2% this week.

  • New Home Sales surged 20.7% in March to the highest level in 15 years as the U.S. housing industry has remained a source of continued strength throughout the early economic recovery.

  • Homebuilders are selling homes as quickly as they can be built as the Monthly Supply of Houses in the United States dipped to just 3.6 months in March, just a fraction above the 60-year lows of 3.5 months of supply.

Real Estate Daily Recap

U.S. equity markets rallied to close on the cusp of fresh record-highs Friday, rebounding from yesterday's tax-hike-driven selloff as housing data this morning showed continued strength behind the economic rebound. Erasing its losses for the week, the S&P 500 ETF (SPY) gained 1.1% today while the Mid-Cap 400 (MDY) gained 1.7% and the Small-Cap 600 (SLY) jumped by 1.9% Real estate equities were the top-performing equity sector on the week on a strong start to Q1 earnings season. The broad-based Equity REIT ETFs (VNQ) gained 0.6% today with 16-of-19 property sectors in positive territory while Mortgage REITs (REM) gained 1.9%.

A historically strong start to Q1 earnings season offset tax hike concerns as nine of the eleven GICS equity sectors finished higher on the day, led to the upside by the Financials (XLF) and Materials (XLB) sectors. Homebuilders and the broader Hoya Capital Housing Index rallied today following another slate of stellar housing data and housing-related earnings reports. 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.

On the economic data front, the Census Bureau reported this morning that New Home Sales surged 20.7% in March to the highest level in 15 years as the U.S. housing industry has remained a source of continued strength throughout the early economic recovery. Sales rebounded from a weather-related slowdown in February to an annualized rate of 1,021k which was 66.8% higher than March 2020 and well above consensus estimates of 890k. Homebuilders are selling homes as quickly as they can be built as the Monthly Supply of Houses in the United States dipped to just 3.6 months in March, just a fraction above the 60-year lows of 3.5 months of supply.

Commercial Equity REITs

Yesterday, we published REIT Dividend Revival: Earnings Preview. Real estate earnings season kicks off this week and we'll see results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies over the next month. REITs are off to a hot start to 2021 with a record-setting quantity of dividend increases. 51 equity REITs and 17 mortgage REITs have raised their dividends this year. Results from the handful of REITs to report results thus far have been impressive. In this report, we discussed the themes and metrics we'll be watching across all of the major real estate property sectors this earnings season.

Net Lease: Alpine Income (PINE) was slightly higher today after the small-cap net lease REIT reported Q1 results yesterday afternoon. PINE announced that it has collected 100% of rent since August 2020 and that its portfolio remains fully occupied. PINE maintained its 2021 guidance, which implies year-over-year per-share FFO growth of 22% to 38% and per share AFFO growth of 40% to 58% as compared to 2020, which would be the strongest in the net lease REIT sector if achieved. PINE owns a geographically diverse of free-standing retail properties based primarily in the Sunbelt region. Top tenants include Wells Fargo (WFC), Hilton (HLT), Hobby Lobby, Dollar General (DG), and At Home (HOME).

Single Family Rental: SPAC Fifth Wall Acquisition Corp. (FWAA) confirmed an earlier report that it's taking property technology firm SmartRent public through a merger that will value the startup at $2.2B. Founded in 2017, SmartRent is an enterprise smart home technology platform for property managers. Investors in the SPAC include SFR REIT Invitation Homes (INVH), and homebuilder Lennar (LEN). The coronavirus pandemic significantly accelerated the adoption of property technology (“PropTech”) services such as virtual house tours, virtualization of legal documents and regulatory requirements, and data-driven lending and financial services. We believe that the continued advancements in the PropTech industry will significantly improve the efficiency, productivity, and margins of the housing industry at large over the next decade and beyond.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.8% today to finish the week with 0.6% gains. Commercial mREITs finished higher by 1.7% to end the week with gains of 0.7%. Apollo Commercial (ARI) gained 2.4% after the commercial lender reported solid results yesterday afternoon. ARI noted that it closed over $500m in transactions in Q1 and commented that "given the robust level of real estate transaction activity, our pipeline continues to build as we focus on deploying currently available capital as well as anticipated additional capital from loan repayments.”

Mortgage REIT earnings season hits high gear next Monday with results from KKR Real Estate (KREF), and AGNC Investment (AGNC). Riding the strength of the housing market, residential mREITs reported continued stabilization last quarter following the dramatic declines earlier in the pandemic. Conditions have been more stable throughout the pandemic on the commercial side, particularly for the REITs focused on lending to the "less COVID sensitive" property sectors.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.35% today, on average, but underperformed their respective common stock issues by an average of -0.77%. So far in 2021, REIT Preferred stocks are higher by 6.72% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.27% and trades at a slight premium to par value.

Economic Data This Week

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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