- U.S. equity markets finished higher Wednesday after the Federal Reserve reiterated support for financial markets while U.S. housing data continues to show impressive and resilient strength in the economically-critical sector.
- Bouncing back from a decline of 0.6% yesterday, the S&P 500 finished higher by 1.2% today while the Dow Jones Industrial Average gained 161 points following yesterday's 205-point decline.
- Pushing gains to 5% this week, the Equity REIT ETF finished higher by another 1.9% with all 18 property sectors in positive territory ahead of another busy afternoon of earnings.
- Pending Home Sales surged 16.6% in June, continuing the streak of impressive housing data. Mortgage applications to purchase a home, meanwhile, are 21% higher from last year as housing continues to lead the recovery.
- We discuss earnings reports from data center REITs CyrusOne and Equinix; apartment REITs Mid-American and AvalonBay; and industrial REITs Duke Realty and EastGroup Properties.
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 finished higher Wednesday after the Federal Reserve reiterated support for financial markets while U.S. housing data continues to show impressive and resilient strength in the economically-critical sector. Bouncing back from a decline of 0.6% yesterday, the S&P 500 ETF (SPY) finished higher by 1.2% today while the Dow Jones Industrial Average (DJI) gained 161 points following yesterday's 205-point decline. Gaining for the third-straight day, the broad-based Equity REIT ETF (VNQ) finished higher by another 1.9% today with all 18 property sectors in positive territory ahead of a busy slate of earnings this afternoon with nearly a dozen REITs reporting Q2 results. The Mortgage REIT ETF (REM), meanwhile, gained 1.3% following gains of 1.0% yesterday.
The gains today came after the Federal Reserve showed no indication of taking their foot off the gas pedal in providing a highly-supportive monetary policy regime while extending emergency measures to support the U.S. economy. All 11 GICS equity sectors finished higher today, led by the economically-sensitive Energy (XLE), Financials (XLF), Industrials (XLK) sectors as encouraging coronavirus data showed that daily cases have again started to wane - particularly in several hotspots in the Sunbelt - after a sharp acceleration since mid-June. With today's gains, the Commerical Real Estate (XLRE) sector has been this week's winner with gains of more than 5%. Homebuilders and the broader Hoya Capital Housing Index delivered another day of strong gains following another slate of stellar housing data.
Residential Real Estate
The National Association of Realtors today reported that Pending Home Sales surged 16.6% in June following a record 44.3% surge in May. The NAR also revised higher their full-year guidance for Existing Home Sales, seeing a decline of just 3% compared to the prior forecast of down 8%. New home sales, meanwhile, are now projected to rise by 3% in 2020. This follows data last week that showed that New Home Sales topped estimates in June, surging 13.8% from May and were higher by 6.9% from last year. Existing Home Sales, meanwhile, surged nearly 21% in June compared with May. The rebound in housing market activity has been aided by longer-term macroeconomic trends of favorable millennial-led demographics, historically low housing supply, and record-low mortgage rates.
The strong trends look poised to continue according to the Mortgage Bankers Association, which today reported that mortgage applications to purchase a home rose are now higher by 21% from the same time last year, holding on to the "V-shaped" recovery pattern exhibited over the last three months. As we discussed in Homebuilders: Clear Signs Of V-Shaped Recovery, high-frequency data has foretold the emerging housing-led rebound since late April. We've discussed since the depths of the pandemic in March how fundamentals suggested that the housing sector was likely to be an unexpected leader of the recovery, a contrast from their role as "provocateur" in the Financial Crisis.
Yesterday, the US Census Bureau released its quarterly Housing Vacancies and Homeownership data today. Headlining that report was data that showed that the homeownership rate jumped to the highest level since 2008 at 67.9%, driven by a continued rise in the household formation rate. Consistent with the demographic trends we've discussed, we forecast a steady uptick in the homeownership rate over the next decade as millennials - the largest generation in American history - begin to enter "ownership age." Recent gains in the homeownership rate over the last three years have been due primarily to a recovery in the younger age cohorts tracked by the Census Bureau. The 35- to 45-year-old cohort saw homeownership rates climb more than one percentage point to 64.3%, the highest in more than ten years.
Commercial Equity REITs
REIT earnings season has officially begun and will hit high-gear this week with six dozen equity REITs and a dozen mortgage REITs reporting results. Last week, we published Dividend Cuts And Overdue Rent: Previewing Earnings Season. REIT earnings should provide pivotal information on rent collection and future dividend plans. We compiled the notable earnings that we’re watching across the residential and commercial real estate sectors. We will provide real-time commentary throughout earnings season and track rent collection and dividend cuts and resumptions in our all-new iREIT Earnings Headquarters tool on iREIT on Alpha.
Apartments: Equity Residential (EQR) and UDR Inc (UDR) each finished lower by roughly 2% after announcing in-line results yesterday afternoon. Both firms noted rent collection remains above 95% while renewal spreads have been roughly flat from the same time last year. This afternoon, AvalonBay (AVB) is flat after-hours after reporting that it has collected roughly 97% of rents in Q2 but also reported a 3.7% decline in same-store NOI amid weakness in the New York and Southern California markets. Sunbelt-focused Mid-America (MAA) reported stronger results, noting a 2.0% rise in same-store NOI and a 1.8% rise in effective rental rates. Fellow Sunbelt-focused apartment REIT Independence Realty (IRT) also reported strong results, noting a 1.2% rise in same-store NOI and a 1.9% rise in effective rental rates.
Data Center: CyrusOne (CONE) announced results this afternoon, reporting leasing of $37 million in annualized GAAP revenue, which compares to $60 million last quarter and $13 million in 2Q19. Equinix (EQIX) also reported results this afternoon, reaffirming prior full-year AFFO per share guidance. On Monday, QTS Realty (QTS) reported $21 million in new and modified renewal leases during the second quarter of 2020 compared to $22 million last quarter and 20 million in 2Q19. As we discussed in Data Center REITs: The New Digital Office, leasing activity - the most closely-watched earnings metric - surged in the first quarter to the highest level since mid-2018 as the sector continues to ride substantial secular tailwinds.
Industrial: STAG Industrial (STAG) rose nearly 3% after reporting yesterday afternoon that it collected 98% of Q2 rents and same-store NOI growth of 2.1%. EastGroup Properties (EGP) jumped more than 5% after it announced that it collected roughly 98% of Q2 rents and recorded same-store NOI growth of 4.1% while raising full-year guidance. Duke Realty (DRE) reported results after the bell today, becoming the fourth industrial REIT to raise full-year guidance while reporting a 26.6% jump in net effective rents (10.7% on a cash basis). As discussed in our recent Industrial REIT sector report, industrial REITs haven't skipped a beat since the outset of the pandemic, collecting essentially all the rent as the supply/demand outlook remains highly favorable.
Commentary on reports today from Equity Commonwealth (EQC), Piedmont (PDM), Paramount (PGRE), Empire State Realty (ESRT), Hudson Pacific (HPP), Kilroy (KRC), Crown Castle (CCI), VICI Properties (VICI), Four Corners (FCPT), and Weingarten (WRI) will be available on the iREIT on Alpha Marketplace later this evening.
As tracked in our Mortgage REIT Tracker available to iREIT on Alpha subscribers, residential mREITs finished higher by 1.7% today to push their weekly gains to 2.6% while commercial mREITs gained 1.2% to push their weekly gains up to 4.1%. Blackstone Mortgage (BXMT) gained more than 2.5% after reporting that its BV per share slipped 2% during the quarter but collected 100% of borrower interest while raising $607M of new capital. Dynex Capital (DX) finished higher by nearly 3% today after reporting that its BV per share rose 4.9% in Q2 to $16.69. Annaly Capital (NLY) is higher by 1% in the after-hours session after reporting that its BV per share rose 12% in Q2, above estimates. Capstead Mortgage (CMO), meanwhile, reported after the close that its BV per share increased 11.9% to $6.79 per common share.
Yesterday, we published our mREIT Earnings Preview - Mortgage REITs: Back From the Brink. Despite a 70% rally from the lows in early-April, mREITs remain lower by more than 40% this year and trade at an estimated 20% discount to book value. Few asset classes have been slammed harder by the pandemic than Mortgage REITs, which have seen a "dividend cut bloodbath" with 33 of 42 mREITs suspending or reducing their dividends. We discussed the three trends that we're watching this earnings season: 1) Dividend Cuts and Resumptions; 2) Updated Book Value Estimates, and 3) Macroeconomic Commentary on the Mortgage and Housing Markets.
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 1.0% today, on average, but underperformed their respective common stock issues by an average of 0.7%. Among REITs that offer preferred shares, the performance of these securities has been an average of 17.0% 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, in addition to a frenetic slate of real estate earnings, we have another busy week of economic data in the week ahead highlighted by GDP data on Thursday which is expected to show a record 34% annualized decline in economic output resulting from the devastating lockdowns in effect from April through June in many parts of the country. 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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