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 reversed early-session gains on Monday, finishing mostly lower after California announced a reimposition of economic lockdowns on many services-oriented businesses amid a resurgence in confirmed virus cases. Following gains of 1.7% last week, the S&P 500 ETF (SPY) finished lower by 0.9% today while the Dow Jones Industrial Average (DIA) finished higher by 11 points, more than 500 points below its intra-day high. After finishing last week lower by 2.4%, the broad-based Equity REIT ETFs finished lower by another 1.2% today with 15 of 18 property sectors in negative territory while the Mortgage REIT ETF declined by 0.3%.
California - along with a handful of southern states - have taken the reigns back from New York City as ground-zero of the pandemic, prompting California Governor Newsom to order the statewide closure of indoor operations for many services businesses, including restaurants, bars, and movie theaters, effective immediately. Additionally, California ordered the closure of indoor operations for fitness centers, worship services, personal care services, malls, offices, hair salons and barbershops for all counties representing roughly 75% of the state's population. Seven of the eleven GICS equity sectors finished lower on the day as the Healthcare (XLV), Financials (XLF), and Industrials (XLI) sectors were able to hold onto gains while Technology (XLK) stocks cooled-off after several weeks of relentless gains.
As discussed in our Real Estate Weekly Outlook, while the Citi Economic Surprise Index remains near record-high, several high-frequency data points including mobility data and restaurant reservation data - which had correctly foretold the emerging economic rebound seen over the last two months - have shown hints of rolling over as several states have scaled, delayed or reversed reopening progress while the reopening of schools this fall has come into doubt as well. These reopening reversals threaten to slow the pace of the recent employment rebound. Earlier this month, BLS reported that 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 resulting from economic shutdowns. 
Commercial Equity REITs
It's expected to be a fairly quiet week of REIT newsflow ahead of second-quarter earnings season, which kicks of a week from today. As with Q1 earnings season, rent collection and dividend cuts/resumptions are expected to be the primary focus of investors in Q2. We've heard interim business updates from many REITs over the last few weeks including this morning from office REIT Empire State Realty Trust (ESRT), which reported rent collection of 84%, 81%, 79%, and 75% for April, May, June and July respectively. This follows a slate of generally strong rent collection updates 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" sectors.
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.
Many of the reopening-sensitive REIT sectors were among the winners today despite the late-day reversal while the stay-at-home winners including data centers and cell tower REITs were among the laggards. Small-caps Braemar Hotels (BHR), CBL & Associates (CBL), CorePoint Lodging (CPLG), and Postal Realty (PSTL) were the top-performers today while large-cap American Tower (AMT), Digital Realty (DLR), and SBA Communications (SBAC) were laggards, weighing down the market-cap-weighted indexes.
Mortgage REITs
As tracked in our Mortgage REIT Tracker available to iREIT on Alpha subscribers, residential mREITs finished lower by 0.8% today while commercial mREITs gained 0.2% today. Broadmark Realty (BRMK) finished lower by 1.0% today despite announcing a $0.06/share monthly dividend, in line with previous, representing a forward yield of 8.04%. Our partners on iREIT on Alpha recently wrote a recent analysis on the unique homebuilding-focused mREIT titled: If There's A Crisis, It Won't Be A Housing Crisis which detailed BRMK's portfolio and underlying strategy.
The latest data and commentary from Black Knight (NYSE:BKI) showed that following on last week's decline, the number of active forbearance plans fell another 435,000 last week, the largest drop since the start of the pandemic, a decline that was "likely driven at least in part by the fact that more than half of all active forbearance plans at the start of June were set to expire at the end of the month. While the majority have been extended, a significant share were not." While not completely out of the woods yet, continued stabilization in the mortgage markets has been the driving force behind the recent recovery in mortgage REIT shares from their lows in early April as the number of Americans in active forbearance on their mortgages continues to trend downward since its peak in late May. The number of active forbearance plans is now 4.14 million, representing 7.8% of all active mortgages.
REIT Preferreds & Bonds
As tracked in our all-new REIT Preferred Stock & Bond Tracker available to iREIT on Alpha subscribers, REIT Preferred stocks finished lower by 1.4% 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 17.1% 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, following a fairly slow week of economic data, we have a busy slate of economic and housing data in the week ahead. Consumer Price Index inflation data kicks off the week on Tuesday. On Wednesday, we'll see Industrial and Manufacturing Production data as well as the weekly mortgage data from the Mortgage Bankers Association. Retail Sales and Homebuilder Sentiment data is released on Thursday, and on Friday, we'll see Housing Starts and Building Permits data. Initial and Continuing Jobless Claims data, released on Thursday, will also continue to be our focus for indications that more temporarily-unemployed 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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