REITs: A Year To Forget
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 finished a tumultuous 2020 at record-highs despite the unprecedented ongoing global pandemic, rallying back from a historic market sell-off that push financial markets to the absolute brink.
- Ending the year with gains of more than 16%, the S&P 500 finished higher by 0.6% today while the Dow Jones Industrial Average gained 197 points to close at fresh record-highs.
- Real estate equities were mostly higher on the day as the broad-based Equity REIT ETF (VNQ) gained 1.0% with 16-of-19 property sectors in positive territory, but ended 2020 lower by 8.5%.
- The gains today were aided by encouraging employment data this morning. Initial Jobless Claims ticked lower to 787k - four-week lows - showing signs of improvement after an uptick in December. Continuing Claims decreased to 5.21 million, down another 100k from last week.
- 130 of 170 equity REITs finished in negative territory for the year with five REITs recording declines of over 80%. 35 of 41 mortgage REITs recorded declines in 2020. "Essential" property sectors - housing, technology, and logistics - were the bright-spots.
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 finished a tumultuous 2020 at record-highs despite the unprecedented ongoing global pandemic, rallying back from a historic market sell-off in March that push financial markets to the absolute brink. Ending the year with gains of more than 16%, the S&P 500 ETF (SPY) finished higher by 0.6% today while the Dow Jones Industrial Average (DIA) gained 197 points to close at record-highs. Real estate equities were mostly higher on the day as the Equity REIT ETF (VNQ) gained 1.0% with 16 of 19 property sectors in positive territory, but ended the year off by 8.4%. The Mortgage REIT ETF (REM) gained 0.6% but ended the year lower by 28.5%.
Ten of the eleven GICS equity sectors finished in positive territory today led by three of the four sectors that finished the year in the red: Utilities (XLU), Commercial Real Estate (XLRE), and Financials (XLF). Small-Caps (SLY) gained 0.1% and Mid-Caps (MDY) rose by 0.2%, each closing within a half-percent of their record highs set earlier in the week. Bitcoin (BTC-USD) surged another 10.6% to also close at fresh records. Another strong day from Residential REITs and housing-related financials offset a continued pullback from the homebuilders as the Hoya Capital Housing Index finished flat.
The gains today were aided by encouraging employment data this morning. Initial Jobless Claims ticked lower to 787k - four-week lows - showing signs of improvement after an uptick in December. Continuing Claims decreased to 5.21 million, down another 100k from last week. Since the peak in early May at nearly 25 million, Continuing Claims have retreated by 19.7 million. As discussed in our Real Estate Weekly Outlook, the newly-signed stimulus package will provide an additional $300 per week in enhanced unemployment benefits, in addition to direct payments of $600 to most Americans, and will provide additional funds for the Paycheck Protection Program extension.
Commercial Real Estate
As we'll discuss in more detail in our upcoming 2020 Year in Review, seven of the 19 REIT sectors are finished in positive territory for the year, while on the residential side, five of the eight sectors in the Hoya Capital Housing Index finished in positive territory for the year. At 0.92%, the 10-Year Treasury Yield (IEF) retreated exactly 100 basis points since the start of the year and is roughly 230 basis points below recent peak levels of 3.25% in late 2018, but 40 basis points above its all-time closing low of 0.52% in August 2020.
In our coverage universe of 172 equity REITs, 43 REITs finished in positive territory for the year, led by cannabis REITs Power REIT (PW) and Innovative Industrial (IIPR). Among large-cap REITs, Equinix (EQIX), SBAC Communications (SBAC), and Digital Realty (DLR) were the top performers. 130 equity REITs finished in negative territory for the year with five REITs recording declines of over 80% - mall REITs Washington Prime (WPG), Pennsylvania REIT (PEI), and CBL & Associates (CBL), along with hotel REIT Ashford Hotels (AHT) and specialty REIT CorEnergy (CORR)
As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.7% today but ended the week lower by 1.2%. Commercial mREITs finished higher by 0.3% today but remain lower by 1.9% this week. On a market-cap weighted basis, residential REITs ended 2020 with declines of roughly 25% while commercial mREITs declined by roughly 2%. Using a simple average, among the 23 residential mREITs, the average price return in 2020 was -33.3%. Among the 18 commercial mREITs, the average price return in 2020 was -18.5%
REIT Preferreds & Bonds
As tracked in our REIT Preferred Stock & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.55% today, on average, but underperformed their respective common stock issues by an average of 0.15%. The average REIT preferred returned 7.87% on a price return basis, but was roughly even on a total return basis. Among REITs that offer preferred shares, the performance of these securities was an average of 15.47% higher in 2020 than their respective common shares. The average REIT preferred trades at a 5% discount to Par Value and has an average current yield of 6.81%.
This Week's Economic Calendar
We'll publish a full analysis and commentary of this week's economic data in our Real Estate Weekly Outlook report published on Saturday.
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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.
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