Jobs Rebound | REITs Lead Week's Rally | Rent Collection Updates
REITs, ETF investing, Dividend Investing, Homebuilders
Seeking Alpha Analyst Since 2012
Real Estate • High Yield • Dividend Growth
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- U.S. equity markets gained on Thursday, finishing the week sharply higher after a jam-packed slate of employment data painted a generally optimistic picture of the state of the economic recovery.
- Finishing the week with gains of more than 4%, the S&P 500 finished higher by 0.5% today while the Dow Jones Industrial Average gained 92 points following yesterday's 78-point decline.
- Ending the week with strong gains of 5.2%, the broad-based Equity REIT ETFs finished off by 0.3% on the day with 12 of 18 property sectors in negative territory.
- This week's gains were bolstered by an encouraging slate of employment data, capped off by a very strong BLS payrolls report today. The U.S. economy added 4.8 million jobs in June - the single-largest month of job growth ever.
- This follows ADP data yesterday which showed that 2.3 million jobs were added in June. We'll have a full analysis of this week's economic data in our Real Estate Weekly Outlook published on Saturday morning.
Real Estate Daily Recap
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U.S. equity markets gained on Thursday, finishing the week sharply higher after a jam-packed slate of employment data painted a generally optimistic picture of the state of the economic recovery. Finishing the week with gains of more than 4%, the S&P 500 ETF (SPY) finished higher by 0.5% today while the Dow Jones Industrial Average (DIA) gained 92 points following yesterday's 78-point decline. Ending the week with strong gains of 5.2%, the broad-based Equity REIT ETFs finished off slightly by 0.3% on the day with 12 of 18 property sectors in negative territory while the Mortgage REIT ETF (REM) declined by 1.9% and finished the week flat.
The economically-sensitive equity sectors led the way today following a stronger-than-expected slate of employment data. The Materials (XLB), Energy (XLE), and Industrials (XLI) sectors were the strongest performers while the Communications (XLC) and Commerical Real Estate (VNQ) were the laggards. The gains came amid a mix of positive and negative data on the coronavirus outbreak and the state of economic reopenings as progress on vaccine development and solid employment and housing market data this week were partially offset by reports that some states and companies continue to delay or reverse reopening progress.
This week's gains were bolstered by a generally encouraging slate of employment data, capped off by a very strong BLS nonfarm payrolls report on Friday. The U.S. economy added 4.8 million jobs in June - the single-largest month of job growth ever, topping last month's previous record-setting number - following two months of devastating job losses during the coronavirus shutdowns. Economists were expecting 3 million additional job gains in June. This follows ADP data yesterday which showed that 2.3 million jobs were added in June - slightly below expectations of 3 million - but made a significant upward revision of 5.8 million jobs to their May figures. We'll have a full breakdown of this week's economic data in our Real Estate Weekly Outlook report published tomorrow morning.
Commercial Equity REITs
Today, we published Cell Tower REITs: Fireworks Abound As Competition Heats Up. Amid the coronavirus pandemic, the high-flying cell tower sector is thriving. Cell Tower REITs have jumped 20% this year, one of three sectors in positive territory. The cellular industry has seen plenty of fireworks over the last two years, underscored by T-Mobile's now-completed acquisition of Sprint and the emergence of Dish Network as a fourth competitor. Dish Network is officially a cellular carrier with this week’s acquisition of Boost Mobile. Questions remain about Dish’s ability to raise necessary capital to fund its ambitious network build-out plans. Meanwhile, Elon Musk's SpaceX continues to make headway on its ambitious low-orbit satellite network. While unlikely to replace towers, these networks may alter industry competitive dynamics.
Yesterday, we published Manufactured Housing REITs: Housing Shortage Intensifies. Equity Lifestyle (ELS) and Sun Communities (SUI) have proven to be immune from coronavirus-related headwinds, collecting nearly 100% of rents. Powered by the macroeconomic tailwinds associated with the affordable housing shortage and favorable demographics, Manufactured Housing REITs have been the best-performing real estate sector of the past decade. The positive momentum should be enough to keep the sector rolling in 2020. Beyond the sector-leading internal growth, external growth through acquisitions and site expansions have provided an added boost. Near-term headwinds related to delayed openings at RV resorts, impaired rent-paying capacity among lower-income residents, and a slowdown in RV and MH unit sales remain risks to monitor.
We also heard some rent collection updates over the last 24 hours including from net lease REIT Realty Income (O) which announced that it collected 85.7% of contractual rent due across its portfolio for the month of June vs. 83.5% for May and 86.9% for April. Yesterday afternoon, Physicians Realty (DOC) announced that it collected 96% of rent in June, an increase relative to the collections in April (93.5%) and May (93.3%) over a comparable time period. This follows a slate of generally strong rent collection updates from REITs over the past several weeks as rent collection has generally improved sequentially from April to May and to June.
We're still in the heart of dividend declaration season in the commercial REIT sector, but we only saw one additional equity REIT - Simon Properties (SPG) add their name to the list of coronavirus dividend cuts this week as the majority of REITs have declared quarterly dividends at previous levels. We have now tracked 58 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.
As tracked in our Mortgage REIT Tracker available to iREIT on Alpha subscribers, residential mREITs finished lower by 2.2% to finish the week off by 2.1% while commercial mREITs finished lower by 1.5% today and are now lower by 2.5% this week. Residential mREITs were the hardest-hit real estate sector during the depths of the pandemic, but have seen conditions stabilize considerably over the last quarter amid continued signs of stabilization in the mortgage markets. Commercial mREITs weren't facing the same "existential crisis" as their residential mREIT peers, but the sector's heavy exposure to the hotel, office, and retail sectors has dragged on performance during the pandemic.
REIT Preferreds & Bonds
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 1.7%. Among REITs that offer preferred shares, the performance of these securities has been an average of 16.3% 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.
This Week's Economic Calendar
We'll have a full analysis of this week's economic data in our Real Estate Weekly Outlook published on Saturday morning.
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