Apartment M&A • Omicron Concerns • Week Ahead

Summary

• U.S. equity markets remained under pressure Monday amid amplified concerns over the recent COVID resurgence as several European and Asian nations - including the Netherlands - have reimposed strict economic lockdowns.
• Adding to declines of 2.3% last week, the S&P 500 slipped another 1.1% today while the Mid-Cap 400 declined 1.7% and the Small-Cap 600 fell 1.3%.
• Coming off a strong week of outperformance, real estate equities were mixed today as the Equity REIT Index finished lower by 0.8% with 5-of-19 property sectors in positive territory.
• Apartment REIT Bluerock Residential (BRG) soared more than 70% today after announcing that it agreed to be acquired by Blackstone (BX) for $24.25 per share in an all-cash transaction valued at $3.6B, representing a substantial premium to its close last Friday at $15.44.
• Net Lease REIT American Finance Trust (AFIN) was also among the best-performing REITs today after announcing that it will acquire a portfolio of 81 shopping centers from CIM Real Estate Finance Trust for $1.3B.

Income Builder Daily Recap

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U.S. equity markets remained under pressure Monday amid amplified concerns over the recent COVID resurgence as several European and Asian nations - including the Netherlands - have reimposed strict economic lockdowns. Adding to declines of 2.3% last week, the S&P 500 slipped another 1.1% today while the Mid-Cap 400 declined 1.7% and the Small-Cap 600 fell 1.3%. Coming off a strong week of outperformance, real estate equities were mixed today as the Equity REIT Index finished lower by 0.8% with 5-of-19 property sectors in positive territory while Mortgage REITs declined 2.3%.

We have another busy week of economic and housing data in the Christmas-shortened week ahead. On Wednesday and Thursday, NAR will release Existing Home Sales data for November which is expected to show a continued acceleration in sales activity despite record-low supply levels. On Thursday, we'll see New Home Sales data which is expected to show similar strength with sales expected to climb to the highest rate since April. On Thursday, we'll also see the PCE Index - the Fed's "preferred" measure of inflation - which is expected to show the fastest rate of consumer price increases since 1982. We'll also be monitoring Personal Income & Spending data as well as Consumer Sentiment on Thursday.

Equity REIT & Homebuilder Daily Recap

Apartment: Small-cap Bluerock Residential (BRG) soared more than 70% today after announcing that it agreed to be acquired by Blackstone (BX) for $24.25 per share in an all-cash transaction valued at $3.6B, representing a substantial premium to its close last Friday at $15.44. BRG owns 30 multifamily properties comprising ~11K units, as well as a loan book secured by 24 multifamily assets. The majority of BRG's properties are located in Atlanta, Phoenix, Orlando, Denver, and Austin.

Single-Family Rentals: Bluerock also announced that it still plans to spin off its single-family rental business to its shareholders into a newly formed real estate investment trust named Bluerock Homes Trust, Inc. ("BHOM"), which will be externally managed by an affiliate of Bluerock Real Estate. BHOM will own interests in approximately 3,400 homes, including 2,000 through preferred/mezzanine investments. The Company's shareholders will receive shares of BHOM, with a current implied Net Asset Value estimated at $5.60. Last week, we published Single-Family Rental REITs: Meet Your New Landlord which discussed how why are one of the great success stories of the Modern REIT Era, becoming a "core" institutional asset class.

Net Lease: American Finance Trust (AFIN) was also among the best-performing REITs today after announcing that it will acquire a portfolio of 81 shopping centers from CIM Real Estate Finance Trust for $1.3B. AFIN will concurrently sell three non-core office properties to Sanofi S.A. for $261M. Both transactions are expected to close during Q1 2022 and AFIN expects the deals to be immediately accretive to AFFO per share. Last week in Net Lease REITs: Analyzing Inflation Risk, we noted how acquisition-fueled external growth - which has explained the vast majority of net lease REITs' FFO growth over the last two decades - kicked back into gear late last year and is expected to power a double-digit percentage point rebound in AFFO growth in 2021.

Casinos: Today, we published a new report on the Casino REIT sector on Hoya Capital Income Builder, which discussed our updated outlook for the highest-yielding REIT sector. Overall, we remain bullish on the Casino REIT sector as a whole - which has pulled back over the last quarter due to Omicron concerns – and we view Casino REITs as a more compelling - and perhaps "under the radar" - alternative to other seemingly "cheap" sectors facing stiffer secular headwinds. Click here for a free trial to read the full report.

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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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.