The S&P 500 index will ditch part of its bet on sports gambling in favor of a different business: renting houses.
S&P Dow Jones Indices announced late Friday that it will replace Penn Entertainment Inc. on the S&P 500 with Invitation Homes Inc. one of the nation's largest institutional landlords. Penn was added to the index in March of last year with fellow casino stock Caesars Entertainment Inc. but is now caught up in a similar double-move in 2022 toward real estate - CoStar Group Inc. which provides services to the real-estate industry and owns websites including ApartmentFinder.com and Apartamentos.com, will join Invitation Homes on the S&P 500.
Invitation Homes and CoStar Group shares rose sharply in after-hours trading Friday, gaining 5% and 6.5% respectively. Penn stock was less than 1% higher in late trading, while shares in PVH Corp. - which will join Penn in a demotion to the S&P Midcap 400 - were steady. The changes will occur before the bell on Monday, Sept. 19.
Penn had a market capitalization of more than $16 billion when it was added to the index last year, after investing in Barstool Sports and making the sports website the face of its online-gambling push, but that valuation had fallen to less than $5 billion by Friday's close. The casino owner's net income declined more than 70% in the first half of the year amid rising expenses, but executives expect revenue to grow nearly 7% and top $6 billion for the first time in 2022.
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Invitation Homes has been buying up single-family homes in the U.S. and renting them out, becoming the most valuable real-estate investment trust, or REIT, in the business of leasing homes to families. The company collected $1.83 billion in rental revenue last year, and cleared $261 million in net income overall; analysts expect those numbers to top $2 billion and $400 million this year, according to FactSet.
Institutional buyers have been prevalent in the real-estate market since the 2008 financial crisis, and some specialize in standalone single-family homes, which comprise roughly a third of the nation's rental housing stock. A recent study from the Harvard Joint Center for Housing Studies found that rents on single-family homes rose by record amounts for 12 consecutive months through March 2022.
For more: Institutional investors have bought hundreds of thousands of homes. Is it creating a 'generation of renters'?
Morgan Stanley analyst Adam Kramer contended last week that institutions own only up to 500,000 of the 17 million single-family rentals, which presents them with the ability to grow much larger and take advantage of a lack of affordable housing.
"Increasing demand as Generations Y & Z are just now entering their household formation years and are more likely to rent vs. own, and an already unaffordable housing market that is becoming even less affordable . that when combined with a lack of supply, will force households into the rental market" led Kramer to increase price targets 8% across the board for Invitation and two rivals, American Homes 4 Rent and Tricon Residential Inc. while assuming coverage last wek.
S&P Dow Jones Indices also promoted Advanced Micro Devices Inc. to the megacap S&P 100 index, replacing DuPont de Nemours Inc. because DuPont "is no longer representative of the megacapitalization market space."
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