Is Inflation Back? • REITs Rebound • Job Losses
REITs, ETF investing, Dividend Investing, Homebuilders
Seeking Alpha Analyst Since 2012
Real Estate • High Yield • Dividend Growth.
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Summary
- U.S. equity markets finished mostly higher Friday, concluding a strong week of performance in the first week of 2021 despite ongoing parison tensions in D.C. and disappointing employment data.
- Ending the week with gains of 2.0%, the S&P 500 finished higher by 0.6% today while the Dow Jones Industrial Average gained 57 points and the Nasdaq 100 jumped 1.3%.
- Real estate equities concluded a disappointing week on the upside as the broad-based Equity REIT ETF (VNQ) gained 1.0% with 13 of 19 property sectors in positive territory.
- The Bureau of Labor Statistics reported that the U.S. economy lost 140k jobs in December - the first month of job declines since April - as the employment rebound reversed amid the "third wave" of economic shutdowns.
- Rising prospectus for additional stimulus in the wake of the Georgia Senate elections has brought inflation fears back to the headlines. We'll break-down what it means for REITs and publish a full analysis of this week's economic data in our Real Estate Weekly Outlook report published on Saturday morning.
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 mostly higher Friday, concluding a strong week of performance in the first week of 2021 despite ongoing parison tensions in D.C. and jobs data showing a reversal in the employment recovery. Ending the week with gains of 2.0%, the S&P 500 ETF (SPY) finished higher by 0.6% today while the Dow Jones Industrial Average (DIA) gained 57 points and the Nasdaq 100 (QQQ) jumped 1.3%. Real estate equities concluded a disappointing week on the upside as the broad-based Equity REIT ETF (VNQ) gained 1.0% with 13 of 19 property sectors in positive territory. Mortgage REITs (REM) gained 0.4% today but ended the week off by 0.6%.
Rising prospectus for additional stimulus in the wake of the Georgia Senate elections was the theme throughout the week as rising inflation expectations lifted the 10-Year Treasury Yield higher by another 3 basis points on the day - and 19 basis points on the week - to fresh post-pandemic highs. Bitcoin (BTC-USD) was relatively steady today, holding near record-highs of nearly $40,000. Seven of the eleven GICS equity sectors finished higher on the day, led by the Consumer Discretionary (XLY), Utilities (XLU), and Technology (XLK) sectors. Homebuilders pulled back today, dragging on the Hoya Capital Housing Index despite fresh data from Redfin (RDFN) showing that the housing market momentum has continued into early 2021.
The Bureau of Labor Statistics reported that the U.S. economy lost 140k jobs in December - the first month of job declines since April - as the employment rebound reversed amid the "third wave" of economic shutdowns. Economists had expected gains of 70k. Revisions to the prior two months, however, added 135k. The "headline" unemployment rate stayed steady at 6.7% while the broader U6 underemployment rate ticked lower to 11.7%. The lukewarm nonfarm payrolls report followed encouraging jobless claims data earlier in the week as Initial Claims ticked lower to 787k, the lowest level in five-week.
Commercial Real Estate
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.
Industrial: Terreno Realty (TRNO) gained 0.9% after it provided a business update in which it reported a 10.9% increase in Q4 cash rents on new and renewed leases, pushing the full-year rent spreads to 22.1%. Occupancy rates remain near record-highs at 98.0% vs. the prior quarter of 98.5% and prior year of 97.8%. Industrial REITs are poised to record the strongest dividend and FFO growth rates among major property sectors this year at nearly 10%. Eight of thirteen industrial REITs raised dividends in 2020.
Shopping Centers & Net Lease: Weingarten Realty (WRI) gained 0.4% after it announced transaction activity for the fourth quarter and for the full year 2020 and provided a COVID-19 update. Collections continue to trend upward with fourth-quarter cash collections of 92% with essential tenants and restaurants at 94%. EPR Properties (EPR) gained 2.3% despite announcing yesterday afternoon that it collected only 46% of Q4 rents, up from its Q2 collection rate at 24% and Q3 collections at 41%.
Mortgage REITs
As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.0% today and ended the week lower by 1.1%. Commercial mREITs finished higher a 0.7% today and ended the week higher by 1.7%. Many of the laggards from 2020 were among the leaders today including Exantas Capital (XAN), Colony Capital (CLNC), and Armour Residential (ARR). 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 0.15% today, on average, but underperformed their respective common stock issues by an average of -0.30%. 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
We'll publish a full analysis and commentary of this week's economic data in our Real Estate Weekly Outlook report published on Saturday morning.
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