Short Squeeze Fizzles • REIT Earnings Update
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 rebounded Thursday on another volatile day as the "short squeeze phenomenon" appeared to climax while investors parsed a frenetic slate of economic data and earnings reports.
- Following declines of 2.6% yesterday, the S&P 500 finished higher by 1.0% today and the Dow Jones Industrial Average rebounded by 300 points following yesterday's 634-point decline.
- Led by the COVID-sensitive property sector, real estate equities were mostly higher today as the Equity REIT ETFs gained 0.5% today with 12 of 19 property sectors in positive territory.
- The short squeeze saga reached a fever pitch after major brokerage firms including Robinhood and Interactive Brokers restricted the purchase of a basket of the heavily-shorted surging stocks including GameStop (GME) and AMC Entertainment (AMC), igniting a social media shockwave.
- Homebuilders were under pressure today despite another solid slate of housing data and earnings reports. New Home Sales in December were higher by 15.2% from last December while median prices jumped 8%.
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 rebounded Thursday on another volatile day as the "short squeeze phenomenon" appeared to climax while investors parsed a busy slate of economic data and corporate earnings reports. Following declines of 2.6% yesterday, the S&P 500 ETF (SPY) finished higher by 1.0% today and the Dow Jones Industrial Average (DIA) rebounded by 300 points following yesterday's 634-point decline. Led by the COVID-sensitive property sector, real estate equities were mostly higher today as the Equity REIT ETFs (VNQ) gained 0.5% today with 12 of 19 property sectors in positive territory while the Mortgage REIT ETFs (REM) rebounded by 1.3%.
The short squeeze saga reached a fever pitch after major brokerage firms including Robinhood and Interactive Brokers restricted the purchase of a basket of the heavily-shorted surging stocks including GameStop (GME) and AMC Entertainment (AMC), igniting a social media shockwave and sparking a series of lawsuits and calls for government investigations. Despite the dip in these high-flyers, all eleven GICS equity sectors were higher on the day with the Financials (XLF), Materials (XLB), and Industrials (XLI) sectors leading to the upside. Small-Caps (SLY) traded lower today after delivering strong outperformance amid yesterday's sell-off.
Homebuilders were under pressure today despite another solid slate of housing data and earnings reports, offsetting a strong day from home improvement retailers and residential REITs in the Hoya Capital Housing Index. The U.S. Census Bureau reported this morning that New Home Sales in December were higher by 15.2% from last December - roughly in-line with estimates - which was the highest sales rate for the month of December since 2006. Consistent with home price data earlier this week, the median price of a new home sold in December jumped to $355,900, up more than 8% from a year ago.
As we've discussed throughout the week, many of the most heavily-shorted equity REITs have also been swept-up in the short squeeze phenomenon. After surging over the prior several days, Macerich (MAC), Tanger Outlets (SKT), and Iron Mountain (IRM) pulled-back sharply today while Seritage Growth (SRG) and Colony Capital (CLNY) continued their recent surge with another day of double-digit percentage gains. Per data from ShortSqueeze.com, the fifteen most heavily-shorted equity REITs listed below have delivered YTD gains averaging 38% compared to the 1% gain on the broader REIT index.
Real Estate Earnings Update
This week we published REIT Earnings Preview: Rents Paid, Dividends Raised? Real estate earnings season kicks off this week while more than 175 equity REITs, 40 equity REITs, and dozens of housing industry companies reporting earnings over the next five weeks. While missed rents and dividend cuts were the prevailing themes in the REIT sector in mid-2020, the vaccine-driven sector rotation has been the dominant theme over the past quarter. Normalizing rent collection and positive dividend commentary could be a positive catalyst to continue the recovery. We expect a historic year for dividend increases following the wave of pandemic-related cuts.
Homebuilders: Meritage Home (MTH) pulled-back 7.8% despite reporting a stellar 52% surge in order growth yesterday afternoon. Investors were disappointed by EPS guidance which called for flat earnings growth in 2021 following the 71% surge in earnings growth in 2020. MTH is one of a small handful of homebuilders that provide EPS guidance and the initial projection appears far too conservative given recent order growth and the swelling backlog. Meanwhile, NVR (NVR) finished lower by 0.4% after reporting results yesterday afternoon as well in which it recorded a 25% jump in order growth. PulteGroup (PHM) dipped 5.7% despite reporting better-than-expected results this morning in which it reported a 24% rise in orders.
Cell Towers: Crown Castle (CCI) declined by 1.1% after reporting results yesterday afternoon. CCI reported in-line results after removing the “Non-Typical Items” which were the result of previously-expected cancellation of some Sprint locations that were redundant with T-Mobile. After removing these items - which resulted in a temporary boost to AFFO and EBITDA metrics - the results were slightly above prior guidance. Excluding these items, AFFO per share rose an impressive 7.2% in 2020 and CCI sees AFFO/share growth of 9.7% in 2021. We'll be listening for commentary on the pace of the 5G rollout and updates on the status of DISH Network's (DISH) launch from CCI as well as American Tower (AMT), and SBA Communications (SBAC).
Office: SL Green (SLG) finished higher by 1.9% today after reporting results yesterday afternoon. The NYC-focused office REIT recorded a 5.9% decline in same-store NOI as the firm collected 94.8% of rents in full-year 2020. The downward pressure on NYC office rents was evident as re-leasing spread dipped nearly 12% in Q4 and ended the full-year with declines of 3.6%. After finishing 2020 with 1.6% rise in FFO growth, the company projects that FFO will decline by roughly 8.6% in 2021 at the mid-point of the guidance range.
Industrial: Duke Realty (DRE) finished lower by 1.6% today despite reporting strong results yesterday afternoon. The logistics-focused REIT reported that same-store NOI growth rose by 5.0% in full-year 2020, ahead of previous guidance while FFO per share rose by an impressive 9.4% for the year. Echoing similarly-strong forward guidance provided by Prologis (PLD) earlier in the week, DRE sees FFO per share rising another 8.6% in 2021, driven by a 4.0% expected rise in same-store NOI growth.
As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.1% today and are now lower by 0.9% on the week. Commercial mREITs finished higher by 1.4% but remain lower by 2.3% on the week. Capstead Mortgage (CMO) finished lower by 2.0% today after announcing Q4 results yesterday afternoon. CMO noted that its Book value per common share decreased by $0.04 to $6.76.
The iShares Mortgage REIT ETF (REM) ended 2020 with total returns of -20.8%, but the market-cap weighted index hides some of the permanent scars of 2020 on a handful of mREITs. 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%. Of the 41 mREITs in the NAREIT universe, just two paid higher dividends in 2020 compared to 2019, seven paid the same rate, while 32 paid lower dividends.
REIT Preferreds & Bonds
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.35% today, on average, but underperformed their respective common stock issues by an average of 0.02%. Yesterday, Bluerock Residential (BRG) announced today that it will redeem all outstanding shares of its 8.250% Series A Cumulative Redeemable Preferred Stock (BRG.PA) on February 26, 2021 at par. Bluerock Residential has two additional outstanding preferred issues (BRG.PC, BRG.PD) with an initial call date in July and October 2021.
Economic Data In the Week Ahead
We have another jam-packed slate of economic and housing data in the week ahead. On Tuesday, we'll see the Case Shiller Home Price Index for November which is likely to show a continued reacceleration in home price appreciation. On Wednesday, we'll hear from the Federal Reserve. On Thursday, we'll see New Home Sales data for December, which are expected to continue their strong post-pandemic rebound. Also on Thursday, we'll get our first look at fourth-quarter GDP which is forecast to rise modestly from the record-rate in Q3. Then on Friday, we'll see Pending Home Sales as well as Personal Spending & Income data and PCE inflation data for December.
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