Rally Continues | China Recovers | School Openings In Doubt
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 added to last week's broad-based gains on Monday, following the lead of global markets, despite continued concerns over pandemic-related reopening reversals in several states.
- After finishing last week with gains of 4.1%, the S&P 500 finished higher by 1.6% today while the Dow Jones Industrial Average surged 460 points and the Nasdaq eclipsed record-highs.
- Following strong gains of 5.1% last week, Equity REIT ETFs finished off by 0.1% on the day with 9 of 18 property sectors in positive territory. Mortgage REITs rose 1.5%.
- U.S. markets followed the lead of China's Shanghai Composite Index, which climbed to its highest level since 2018 on data showing an emerging recovery while the rest of the world continues to deal with the fallout of the pandemic.
- Student Housing REIT American Campus was the laggard today on news that Harvard University will make all courses available online and plans to bring only up to 40% of undergraduates back to campus for the fall semester.
Real Estate Daily Recap
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 HoyaCapital.com 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 added to last week's broad-based gains on Monday, following the lead of global markets, despite continued concerns over pandemic-related reopening reversals in several states. U.S. markets followed the lead of China's Shanghai Composite Index, which climbed to its highest level since 2018 on data showing an emerging recovery while the rest of the world continues to deal with the fallout of the pandemic. After finishing last week with gains of 4.1%, the S&P 500 ETF (SPY) finished higher by 1.6% today while the Dow Jones Industrial Average (DIA) surged 460 points and the Nasdaq (QQQ) finished at fresh record-highs. Following strong gains of 5.1% last week, the broad-based Equity REIT ETFs finished off slightly by 0.1% on the day with 9 of 18 property sectors in positive territory while the Mortgage REIT ETF (REM) jumped 1.5% after finishing flat last week.
As discussed in our Real Estate Weekly Outlook, strong employment and housing market data - and reports of progress on vaccine development - have overwhelmed concerns of a potential intensification of the coronavirus pandemic as several states have reimposed lockdown restrictions. Eleven weeks after the economic reopening officially began in late April; however, data continues to show a steady decline in coronavirus mortality in the United States with deaths declining to the lowest daily level since March on Sunday. 10 of the 11 GICS equity sectors finished higher on the day, led by the Consumer Discretionary (XLY), Communications (XLC), and Financials (XLF) sectors while Utilities (XLU) lagged. The Hoya Capital Housing Index finished higher by roughly 1% led by a strong day from the Homebuilders and Home Furnishings firms, partially offset by a pullback from residential REITs.
Commercial Equity REITs
American Campus (ACC) was among the laggards today on news that Harvard University will make all courses available online this fall and plans to bring only up to 40% of undergraduates back to campus for the fall semester, including all first-year students. While ACC has no direct exposure to Havard, other schools may follow their lead in scaling back the number of students on campus, which certainly has ramifications for student housing properties. In other REIT news, office REIT Columbia Property (CXP) announced that they have mutually agreed to terminate WeWork’s lease at CXP’s 149 Madison Avenue as part of WeWork’s plan to seek profitable growth and optimize the company’s real estate portfolio.
Cell tower REIT Crown Castle (CCI) issued a statement today in response to activist shareholder Elliot Management's letter. In a letter entitled "Reclaiming the Crown," Elliott Management is calling for change at the company. In the past 5-years, CCI generated 154% total returns compared to 67% and 22% returns from S&P 500 and RMZ index respectively. Elliot noted though the company has outperformed the index, it has lagged its peer American Tower (AMT). Last week, 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. 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.We also heard a rent collection update this morning from shopping center REIT Acadia Realty Trust (AKR), which announced that it collected cash collections of 71% of rents in Q2. Including payment deferral plans, that metric rises to 83%. 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 as rent collection remains a non-issue for "essential" property sectors. We expect a full slate of rent collection reports for June and July when REIT earnings season begins on the week of July 20.
We're still in the heart of dividend declaration season in the commercial REIT sector and may see several more REITs reduce or suspend their dividends over the next several weeks, but may also see some dividend resumption announcements once Q2 earnings season kicks off in a few weeks. 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 higher by 2.2% after finishing last week lower by 2.1% while commercial mREITs finished higher by 0.5% today and after finishing 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.
While not completely out of the woods yet, continued stabilization in the mortgage markets have been the driving force behind the recent recovery in mortgage REIT shares from their lows in early April. The number of Americans in active forbearance on their mortgages continues to trend downward since its peak in late May. According to data from Black Knight, the number of active forbearance plans is now 4.58 million, representing 8.6% of all active mortgages, and has declined in four of the past five weeks. Encouragingly, the total number of homeowners seeking forbearance appears to have topped out at levels shy of 5 million, representing less than 9% of mortgages outstanding, which would be well below the expectations of some pundits who projected up to 25% of homeowners to enter forbearance on their mortgage.
REIT Preferreds & Bonds
As tracked in our all-new REIT Preferred Stock & Bond Tracker available to iREIT on Alpha subscribers, REIT Preferred stocks finished flat today, on average, and underperformed 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 16.3% 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
As discussed in our Real Estate Weekly Outlook, after a frenetic week of economic data, the week ahead will be more subdued, highlighted by PPI inflation data on Friday and PMI data on Monday. JOLTs data on Tuesday will provide some more clarity on the composition of the job losses and the current dynamics of the labor market. Initial and Continuing Jobless Claims data, released on Thursday, will also continue to be a focus for investors. As discussed, we are expecting Continuing Claims to soon reflect the labor market recovery evident in other employment data series.
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