REITs, ETF investing, Dividend Investing, Homebuilders
Contributor Since 2012
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Our Real Estate Daily Recap discusses the notable news and events in the real estate sector over the last trading day and highlights sector-by-sector performance. We publish this note every afternoon at iREIT on Alpha and occasionally for free on our Blog to cover significant news and events. Subscribe to our free mailing list to make sure you never miss the latest developments in the commercial and residential real estate sectors. You can also follow our real-time commentary on Twitter and LinkedIn.
U.S. equity markets continued their rally on Tuesday as signs of recovering global economic data overcame renewed worries over China-U.S. trade tensions and continued coronavirus concerns. Adding to Monday's gains of 0.6%, the S&P 500 ETF (SPY) gained by 0.5% on the day while the Nasdaq (QQQ) climbed to new record-highs with gains nearly 1% powered by continued strength from large-cap technology stocks. Following declines of 0.1% yesterday, the broad-based Equity REIT ETFs finished lower by 0.4% today with 12 of 18 property sectors in negative territory while Mortgage REITs (REM) gained 2.2% after yesterday's 0.7% decline.
The trend of stronger-than-expected economic data over the last several weeks - particularly in the critical U.S. housing sector - continued today as New Home Sales data beat expectations this morning while PMI data in the U.S. and Europe both show patterns of a "V-shaped" rebound. Echoing the price action yesterday, 7 of 11 GICS equity sectors were higher on the day led by the Consumer Discretionary (XLY) and Technology (XLC) stocks while the Hoya Capital Housing Index higher again today as well led by strength from the homebuilders and home furnishings sectors. For the week, the S&P 500 is now higher by 1.1% while Commerical Real Estate (VNQ) is off 0.5%.
As we discussed in Homebuilders: Clear Signs Of V-Shaped Recovery, high-frequency housing data has indicated that market conditions have improved dramatically since late April and New Home Sales data this morning confirmed the sharp rebound. New Home Sales topped estimates in May, jumping 16.6% from April and were higher by 12.7% from last year. Tomorrow we'll see the latest weekly mortgage data from the Mortgage Bankers Association, which reported last week that mortgage applications to purchase a home rose for the 9th straight week to 11-year highs and are now 21% higher from the same week last year compared to the 35% decline in early April. The sharp rebound in housing market activity has been aided by longer-term macroeconomic trends of favorable millennial-led demographics, historically low housing supply, and near-record low mortgage rates.
We've discussed since the dark days of mid-March how underlying macroeconomic fundamentals indicated that the U.S. housing industry was likely to be an unexpected leader of the post-pandemic recovery, a far cry from their role as a primary provocateur during the prior financial crisis. While mortgage demand data was initially dismissed as an outlier at its inflection in mid-April, a preponderance of other concurrent and forward-looking metrics have confirmed the stunningly sharp rebound in housing market activity in recent weeks. In addition to mortgage data, we'll also see home price data tomorrow from the FHFA. Record-low inventory levels combined with decade-highs on mortgage applications to purchase a home have again put substantial upward pressure on home values.
New home construction, in aggregate at the national-level, has experienced a slow, grinding recovery since plunging during the prior recession - a period in which roughly half of privately-held homebuilding firms in the United States went out of business, allowing a growing share of home sales to accrue to publicly-traded builders. By nearly every metric, the US has been significantly under-building homes - particularly single-family homes - over the last decade. Meanwhile, this underbuilding comes ahead a decade in which the largest generation in American history - the millennials - will enter the housing markets in full-force, peaking around 2028. Harvard University's Joint Center for Housing Studies (JCHS) projects that annual household growth from 2018 to 2028 will be 20% higher than the prior five-year average.
Mall REITs were among the leaders today despite a Financial Times report that diversified REIT Brookfield Properties (BPY) has asked for forbearance from lenders who hold debt on a dozen of its malls and is seeking payment on unpaid rent from smaller retailers, in some cases for lease payments for periods when the mall was closed during the pandemic. This comes amid a critical debate between landlords and tenants over whether the pandemic-related shutdowns qualify as a so-called "force majeure" event that could potentially excuse commercial tenants from paying some or all of their rents when their leased space was unable to be fully occupied, a debate that will be battled out in the courts for the foreseeable future.
Meanwhile, the ongoing merger saga between Simon Property (SPG) and Taubman Centers (TCO) continues with a scheduled hearing tomorrow on the motion for an expedited trial. Taubman is alleging that Simon is unlawfully retracting their prior acquisition agreement based on "buyer's remorse." We're still in the heart of dividend declaration season in the commercial REIT sector, but we haven't yet seen any additional equity REITs add their name to the list of coronavirus dividend cuts this week. Last week, we saw hints of a "second wave" of cuts when three REITs - Ventas (VTR), Kite Realty (KRG), and CoreCivic (CXW), added their names to the list of equity REITs that have cut their dividend since the start of the pandemic. We have now tracked 57 equity REITs - primarily retail and lodging REITs - out of our universe of 165 that have now announced a cut or suspension of their common dividend.
We also heard a rent collection update from several companies including diversified REIT Armada Hoffler (AHH), which noted that it collected 87% of June rents, compared to 85% for May and 84% for April. Yesterday afternoon, hospital operator Medical Properties Trust (MPW) announced that it received June rent and loan payments consistent with April and May at 96% of amounts due. "Essential" property sectors including housing, industrial, and technology REITs, along with self-storage and office REITs, all reported collection of more than 90% of rents in April and May and collection rates have generally improved in June.
As tracked in our Mortgage REIT Tracker available to iREIT on Alpha subscribers, residential mREITs finished higher by 2.4% today but remian lower by 1.1% on the week while commercial mREITs finished higher by 2.3% to push their weekly gains to 2.4%. While many equity REITs are still in dividend-cutting mode, we saw a blend of both dividend cuts and dividend increases in the mortgage REIT sector over the last few weeks. This afternoon, New Residential (NRZ) declared a $0.10/share quarterly dividend, a 100% increase from prior dividend of $0.05 as the firm noted a "strong improvement throughout the second quarter." On the downside, however, embattled mREIT Invesco Mortgage (IVR) finished lower by 6.3% after announcing Q1 results yesterday afternoon as the firm confirmed that its book value plunged to $5.02 at the end of Q1 from $16.29 at the end of 2019.
As tracked in our all-new REIT Preferred Stock & Bond Tracker available to iREIT on Alpha subscribers, REIT Preferred stocks finished higher by 0.4% today, on average, and outperformed their respective common stock issues by an average of 0.3%. Among REITs that offer preferred shares, the performance of these securities has been an average of 16.5% higher in 2020 than their respective common shares. Preferred stocks generally offer more downside protection, but in exchange, these securities offer relatively limited upside potential outside of the limited number of “participating” preferred offerings that can be converted into common shares.
As discussed in our Real Estate Weekly Outlook, it'll be another busy week of economic data in the week ahead, highlighted by Existing Home Sales on Monday, New Home Sales on Tuesday, and Personal Income and Spending data on Friday. We'll also get the second revision of Q1 GDP data on Wednesday, which is expected to confirm a 5.0% decline in national output in the first quarter. Second-quarter GDP, when it's released next month, is expected to show a roughly 30% annualized decline - amounting to roughly $1.5 trillion in lost output. Economists are expecting a similarly-sized rebound in the third quarter, however, assuming that the country doesn't undertake a second round of devastating economic lockdowns. Continuing jobless claims data, released on Thursday, will also continue to be a focus for signs that Americans are returning to work.
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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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