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  • Alex Pettee, CFA

Vegas Acquisition • Tech Under Pressure • REIT Earnings

Summary

  • U.S. equity markets finished lower Wednesday on continued pressure on large-cap technology companies amid an ongoing reopening trade that has seen investors rotate into more value-oriented segments of the market.

  • Declining for the second-straight day, the S&P 500 finished lower by 1.3% today while the Dow Jones Industrial Average declined by 121 points. The tech-heavy Nasdaq 100 dipped nearly 3%.

  • Real estate equities were mixed today with strong performance from the COVID-sensitive sectors offset by weakness from last year's outperformers.

  • Casino REIT VICI Properties (VICI) finished higher by 2.5% today after announcing that it will acquire The Venetian Resort Las Vegas for $4 billion and entered into a long-term triple net lease with an affiliate of the Apollo Global Management.

  • REIT earnings season isn't quite done yet. A handful of REITs report results this afternoon including Global Medical (GMRE), CorEnergy (CORR), and Western Mortgage (WMC).

Real Estate Daily Recap

U.S. equity markets finished lower Wednesday on continued pressure on large-cap technology companies amid an ongoing reopening trade that has seen investors rotate into more value-oriented segments of the market. Declining for the second-straight day, the S&P 500 ETF (SPY) finished lower by 1.3% today while the Dow Jones Industrial Average (DIA) declined by 121 points. The tech-heavy Nasdaq 100 (QQQ) dipped nearly 3%. Real estate equities were mixed today with strong performance from the COVID-sensitive sectors offset by weakness from last year's outperformers. The broad-based Equity REIT ETFs (VNQ) finished off by 0.6%, but 10-of-19 property sectors finished in positive territory while the Mortgage REIT ETFs (REM) declined by 0.1%.

The "reopening trade" was on full display today as the economically sensitive sectors including Energy (XLE), Financials (XLF), and Industrials (XLI) were the lone sectors in positive territory while the Technology (XLK) sector lagged. Small-Caps (SLY) managed to eke out a gain today as well to push its YTD gains to nearly 16%, far outpacing the 3% gains from the Large-Cap (SPY) index. The 10-Year Treasury Yield (IEF) climbed 6 basis points to close at 1.47% despite a mixed slate of economic data with weaker-than-expected employment and ISM PMI data offset by decent mortgage market data and Markit PMI data.

On that point, ADP reported today that private payrolls increased 117,000 in February, falling short of the estimate of roughly 175k. The gains in February were driven entirely by the services sector as goods-producing sectors saw employment declines of -14k. The slow start to 2021 for employment gains hasn't yet tempered expectations for full-year GDP growth, which by the Atlanta Fed's estimates, is on pace for 10% gains in Q1. The focus turns to the BLS employment report on Friday as economists are looking for job growth of 165k in February, accelerating from the modest 49k in job gains in January while the unemployment rate is expected to remain steady at 6.3%.

Equity REITs

Casinos: VICI Properties (OTC:VICI) finished higher by 2.5% today after announcing that it will acquire the land and real estate assets associated with The Venetian Resort Las Vegas and the Sands Expo and Convention Center in Las Vegas, Nevada. The $4 billion property, acquired from Las Vegas Sands (LVS), will be operated by subsidiaries of Apollo Global Management (APO). To fund the acquisition, VICI also launched a public offering of 60M common shares on a forward purchase basis. As discussed in our recent Casino REIT report, we see opportunities for accretive external growth and prefer the "destination" casinos - like those owned by VICI - and tenant operators with a solid foothold into the online gaming ecosystem.


Consistent with other Casino REIT leases, VICI will enter into a triple-net lease agreement for the Venetian with an affiliate of the Apollo Funds. The lease will have an initial total annual rent of $250.0 million and an initial term of 30 years, with two ten-year tenant renewal options. LVS has agreed to provide lease payment support designed to guarantee the Venetian Resort’s rent obligations under the lease through 2023, with early termination of such lease payment support if the Venetian Resort achieves a certain financial milestone or a tenant change of control occurs. Rent under the lease will escalate at the greater of 2.0% or CPI (subject to a 3.0% ceiling), beginning the earlier of lease year three or when the Venetian Resort achieves certain financial milestones. The transaction is expected to be completed by year end 2021.

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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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