REITs Rebound | Stimulus Talks | Hope For Bankrupt Malls

Dec. 01, 2020 4:39 PM ETAAIC, AAIC.PR.B, AAIC.PR.C, AAPL, AAT, ABR, ABR.PA, ABR.PB, ABR.PC, ABT, BX, ACRE, ADC, AEO, RTL, GNL.PR.D, AGNC, AGNCM, AGNCN, AGNCO, AGNCP, AHH, AHH.PR.A, AHT, AHT.PR.D, AHT.PR.F, AHT.PR.G, AHT.PR.H, AHT.PR.I, AIC, AIV, AIW, AJX, AJXA, AKR, ALEX, AMC, AMH, AMH.PD, AMH.PE, AMH.PF, AMH.PR.G, AMH.PR.H, AMT, AMWD, AMZN, ANF, APLE, APPL, ARI, ARR, ARR.PR.C, AVB, AWI, AWP, AZN, AZNCF, BA, BAC, BAC.PA, BAC.PR.B, BAC.PC, BAC.PR.E, BAC.PR.K, BAC.PR.L, BAC.PR.M, BAC.PR.N, BACRP, BALY, BAM, BAMGF, BAMKF, BDN, BHR, BHR.PR.B, BHR.PR.D, BK, BK.PC, BKFPF, BKI, BLK, BML.PR.G, BML.PR.H, BML.PR.J, BML.PR.L, BNL, BNTX, BPY, BPYPN, BPYPO, BPYPP, BPYU, BPYUP, BRG, BRG.PA, BRG.PC, BRG.PD, RC, BRT, BRX, BXMT, BXP, BXP.PB, BYD, C, C.PR.K, CCI, CCI.PA, CHCT, CHDN, CHIM, CHMI, CHMI.PR.A, CHMI.PR.B, CIM, CIM.PR.A, CIM.PR.B, CIM.PR.C, CIM.PR.D, CIO, CIO.PR.A, DWAY, CLDT, VRE, BRSP, DBRG, DBRG.PG, DBRG.PR.H, DBRG.PR.I, CLPR, FBRT.PR.E, CNLC, CNTY, COLD, CONE, COST, CPI, CPLG, CPRJ, CPT, CRM, CTRE, PCH, CUBE, CUZ, CVCO, CXW, CZR, DEA, DEI, DHC, DHI, DJI, DLR, DLR.PC, DLR.PG, DLR.PI, DLR.PR.J, DLR.PR.K, DLR.PR.L, DOC, PLD, DRH, DRH.PR.A, DX, DX.PB, DX.PR.C, EARN, EFC, EFC.PR.A, EGP, EPR.PR.C, EPR.PR.E, EPR.PR.G, EPRT, EQC, EQC.PR.D, EQIX, EQR, ERI, ESRT, EXR, META, FMCC, FMCCG, FMCCH, FMCCI, FMCCK, FMCCL, FMCCM, FMCCN, FMCCO, FMCCP, FMCKI, FMCKJ, FMCKK, FMCKL, FMCKM, FMCKN, FMCKO2 Comments

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Summary

U.S. equity markets rebounded Tuesday with the major averages eclipsing fresh all-time highs on continued positive developments in vaccine deployment and following reports of a resumption of long-stalled stimulus talks.
Closing at fresh record-highs and extending its historic November rally, the S&P 500 gained 1.1% today while the Dow Jones Industrial Average gained 185 points.
Real estate equities were among the leaders today as the Equity REIT ETF (VNQ) gained 1.3% with all 18 property sectors in positive territory and Mortgage REITs (REM) gained 0.9%.
Bankrupt mall landlord Pennsylvania REIT (PEI) finished lower by 2% after a pre-market jump on reports that it expects to emerge from Chapter 11 bankruptcy early in December. PEI has lost 80% of its value this year and 95% over the past five years.
Construction spending data this morning confirmed that U.S. housing industry continues to be one of the driving forces behind the early post-pandemic economic recovery. Residential construction spending was 14.5% higher in October than the prior year, which offset an 8.2% dip in nonresidential spending.

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 in its entirety on The REIT Forum and post this condensed version on our website and Seeking Alpha blog to cover significant news and events. Subscribe to our free email list to keep up with the latest developments in the commercial and residential real estate sectors. Follow our real-time commentary on Twitter and LinkedIn.

U.S. equity markets rebounded Tuesday with the major averages eclipsing fresh all-time highs on continued positive developments in vaccine deployment and following reports of a resumption of long-stalled stimulus talks. Closing at fresh record-highs and extending its historic November rally, the S&P 500 ETF (SPY) gained 1.1% today while the Dow Jones Industrial Average (DIA) gained 185 points following yesterday's 272-point dip. Real estate equities were among the leaders today as the Equity REIT ETF (VNQ) gained 1.3% with all 18 property sectors in positive territory. Mortgage REITs (REM), meanwhile, gained 0.9% following a decline yesterday.

December began on a positive note for Mid-Cap (MDY) and Small-Cap (SLY) stocks, as well, following a record-setting November in which the index-tracking ETFs surged by 14.3% and 18.6%, respectively. The gains today were broad-based following some end-of-month rebalancing activity yesterday. 10 of the 11 GICS equity sectors finished in positive territory today, led by the Communications (XLC), Financials (XLF), and Technology (XLK) sectors. The high-flying homebuilders were under pressure today, however, dragging on the Hoya Capital Housing Index and offsetting the relatively strong performance today from residential REITs and real estate technology names.

On the economic data front, U.S. PMI data this morning was roughly in-line with expectations, while manufacturing activity in China expanded for the ninth-straight month at a faster-than-expected rate. Meanwhile, construction spending data this morning confirmed that U.S. housing industry continues to be one of the driving forces behind the early post-pandemic economic recovery. Residential construction spending was 14.5% higher in October than the prior year, which offset an 8.2% dip in nonresidential spending. Robust spending on home construction drove total construction spending higher by 3.7% from last year, the strongest rate of annual growth since March.

Commercial Equity REITs

Malls: Bankrupt mall REIT Pennsylvania REIT (PEI) finished lower by 2% after a pre-market jump on reports that it expects to emerge from Chapter 11 bankruptcy early in December. PEI, which has lost 80% of its value this year and 95% over the past five years, filed for bankruptcy in early November in the same week as fellow mall REIT CBL & Associates (CBL). As analyzed in Mall REITs: Too Little, Too Late, mall REITs entered 2020 on unstable footing following a tsunami of store closings over the past decade. Despite improving rent collection and foot traffic, earnings reports revealed that Q3 was another epically-bad quarter with same-store Net Operating Income plunging over 20%. While the lower-tier of the sector is getting hollowed out, the forthcoming post-pandemic "suburban revival" does offer a glimmer of hope.

Today, we published Single-Family Rentals: Suburban Renaissance. Riding the tailwinds of the red-hot U.S. housing market, single-family rental REITs have been one of the top-performing real estate sectors throughout the pandemic. Fueled by the maturing millennial generation, the 2020s were already poised to be a decade of "suburban revival" and behavioral changes in the post-coronavirus world have provided an added spark. The mounting housing shortage - and concerns over housing affordability - will position SFRs to be the default "starter home" for millions of millennials. Could the housing market be "too strong" for SFR REITs? The dislocations that gave rise to the SFR sector are unlikely to reappear as the housing industry is poised to continue to lead the post-pandemic economic recovery.

Mortgage REITs

As tracked in our Mortgage REIT Tracker available to REIT Forum subscribers, residential mREITs finished higher by 1.2% today but remain lower by 2.8% this week. Commercial mREITs finished higher by 2.4% today but remain lower by 0.5% on the week. ARMOUR Residential (ARR) declared a $0.10/share monthly dividend, in line with previous. As discussed in our recent mREIT Earnings Recap, residential mREITs reported an average 7% gain in Book Values in the third-quarter following the 9% gain in Q2. Commercial mREITs reported an average 2% rise in Book Values in Q3 following the fractional gain in Q2.

REIT Preferreds & Bonds

As tracked in our REIT Preferred Stock & Bond Tracker available to REIT Forum subscribers, REIT Preferred stocks finished higher by 0.45% today, on average, but underperformed their respective common stock issues by an average of 0.23%. Among REITs that offer preferred shares, the performance of these securities has been an average of 17.85% higher in 2020 than their respective common shares. The average REIT preferred trades at a 6% discount to Par Value and has an average coupon of 6.80%.

This Week's Economic Calendar

Employment data highlights this week's economic calendar, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for employment gains of roughly 500k in October following last month's gain of 638k and for the unemployment rate to tick down to 6.7%. We'll also see Construction Spending data on Tuesday, the weekly MBA Mortgage Application data on Wednesday, and a flurry of PMI data throughout the week.

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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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