Rent Collection Updates • Crypto Mania • Tensions Ease

Summary

• U.S. equity markets finished broadly-higher Thursday as the partisan tensions eased and as investors begin to price-in the anticipated effects of the "trifecta" of political control for Democrats for economic policy.
• Now higher by 1.6% for the week, the S&P 500 finished higher by 1.5% today while the Dow Jones Industrial Average gained 212-points. Small- and Mid-Caps added to their robust weekly gains.
• Real estate equities have gotten off to a slow start in 2021, underperforming for the fourth-straight day as the Equity REIT ETF declined by 0.2% with 10-of-19 property sectors in negative-territory.
• With additional stimulus high on the docket for the incoming administration, all eyes are on inflation expectations, the Fed, and Treasury Yields. Meanwhile, Bitcoin surged another 19.3% to fresh highs at nearly $40,000.
• We heard business updates from a handful of net lease REITs over the last 24 hours including GNL, EPR, and AFIN. While rent collection has almost fully "normalized" for most REITs, movie theater owner EPR collected less than 50% of rent in Q4.

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 on The REIT Forum and occasionally on our website and this 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 broadly higher Thursday as the partisan tensions eased and as investors begin to price-in the anticipated effects of the "trifecta" of political control for Democrats for fiscal policy. Now higher by 1.6% for the week, the S&P 500 ETF (SPY) finished higher by 1.5% today while the Dow Jones Industrial Average (DIA) gained 212 points. Real estate equities have gotten off to a slow start in 2021, underperforming for the fourth-straight day as the broad-based Equity REIT ETF (VNQ) declined by 0.2% with 10 of 19 property sectors in negative territory. The Mortgage REIT ETF (REM) gained 0.1% today but remains lower by 0.7% on the week.

With additional stimulus likely high on the political docket for the incoming Biden administration, all eyes are on inflation expectations, the Fed, and the 10-Year Treasury Yield, which again climbed to fresh post-pandemic highs at 1.07%. Bitcoin (BTC-USD) surged another 19.3% to fresh highs at nearly $40,000. Nine of the eleven GICS equity sectors finished higher on the day, led by the Technology (XLK), Consumer Discretionary (XLY), and Energy (XLE) sectors. Homebuilders led the Hoya Capital Housing Index to solid gains as well as the 30-Year fixed-rate mortgage dipped to fresh historic lows, laying the groundwork for a strong start to 2021 for the U.S. housing markets. 

Today's gains were also aided by encouraging employment data as Initial Jobless Claims ticked lower to 787k to five-week lows, showing signs of improvement after an uptick in December corresponding with the "third wave" of economic lockdowns in several cities. Continuing Claims decreased to 5.07 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 last week, 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. Economists are looking for employment gains to slow to roughly 100k in tomorrow's non-farm payrolls report following and for the unemployment rate to tick up slightly to 6.8%.

Commercial Real Estate

Following the sharp moves yesterday in the commercial REIT sector, price action today was more muted with data center and storage REITs leading to the upside while hotel and net lease REITs lagged. Troubled mall REITs CBL & Associates (CBLAQ) and Washington Prime (WPG) led the way today, pushing their weekly gains above 25% on stimulus hopes and NYSE exchange compliance news announced earlier this week. 

Net Lease: We heard business updates from a handful of net lease REITs over the last 24 hours. Global Net Lease (GNL) finished higher by 0.4% after providing a business update in which it noted that it has collected 97% of Q4 rents, roughly in-line with Q3. American Finance Trust (AFIN) finished lower by 0.8% after announcing that it collected 95% rent in Q4. This afternoon, EPR Properties (EPR), the largest movie theater landlord in the country, announced that it collected only 46% of Q4 rents, up from its Q2 collection rate at 24% and Q3 collections at 41%.

Today, we published Cheap REITs Stay Cheap on The REIT Forum. Earlier this year, we published a report titled "Cheap REITs Stay Cheap" that analyzed the "factors" that exhibited persistent outperformance in the REIT sector over the past several decades. Key takeaways from this report included the observation that higher-yielding, higher-leveraged, and "inexpensive" REITs tended to produce inferior total returns over most measurement periods. These "factors" were on full display at extreme levels in 2020 amid the coronavirus pandemic. We revisit and analyze the performance trends within the REIT sector in 2020 and the outlook ahead for 2021.

Despite the pullback in 2020, REITs have been one of the best-performing asset classes since the start of 2010, producing average annual total returns during this time of 11.1% and as noted in the chart above, investors that have blended the more growth-oriented homebuilders together with the generally more yield-oriented REITs have seen superior returns with lower portfolio volatility. Interestingly, 2020 was the first year since 2009 that REITs finished in the bottom four of the ten major asset classes and despite the pull-back, still lag only the Small-Cap (SLY), Mid-Cap (MDY), and Large Cap (SPY) equities over this time. REITs have produced far superior total returns to Bonds (AGG), TIPS (TIP), Commodities (DJP), ad International (EFA) stocks.

Manufactured Housing: Earlier this week, we published Work From Anywhere. MH REITs outperformed the broad-based REIT Index for a remarkable eighth consecutive year in 2020, continuing to ride the tailwinds from the lingering housing shortage across the United States. Housing inventory levels dipped to historic-lows in 2020, particularly in the affordable housing segments. Fueled by limited supply, MH REITs have delivered the strongest rent growth of any property sector. Providing an added boost, RV sales smashed records in the back-half of 2020. "Work From Home" will transition to "Work From Anywhere," powering second-home and RV sales.

Mortgage REITs

As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.3% today but remain lower by 1.5% on the week. Commercial mREITs finished lower by 0.6% today but are still higher by 1.1% on the week. Earlier this week, RMR Real Estate Income Fund (RIF) completed its transition from a closed-end fund to a commercial mortgage REIT, RMR Mortgage Trust (RMRM). The average residential mREIT currently pays a forward yield of 9.0% while the average commercial mREIT pays a forward yield of 7.2%.

REIT Preferreds & Bonds

As tracked in our REIT Preferred Stock & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.27% today, on average, but outperformed their respective common stock issues by an average of 0.21%. The REIT Preferred ETF (PFFR) ended 2020 with total returns of -0.2% and REIT preferreds are roughly flat through the first four days of 2021. The average REIT preferred trades at a 5% discount to Par Value and has an average current yield of 6.81%.

Economic Data This Week

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 to slow to roughly 100k in December following last month's gain of 245k and for the unemployment rate to tick up slightly to 6.8%. We'll also see Construction Spending data on Monday, the weekly MBA Mortgage Application data on Wednesday, and 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.

I am/we are long all holdings listed at www.HoyaCapital.com