Tech Trouble • Vaccine Immunity • REIT Earnings Frenzy
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 were mostly lower Monday as rising bond yields pressured many of the mega-cap technology stocks as encouraging results from vaccine studies suggested a sooner-than-feared return to normalcy.
- Ending lower for the fifth-straight day for the first time since last February, the S&P 500 finished lower by 0.8% today while the Dow Jones Industrial Average gained 27 points.
- Real estate equities were broadly higher today ahead of another frenetic week of earnings reports as the broad-based Equity REIT ETFs finished higher by 0.8% with 13-of-19 property sectors in positive-territory.
- The 10-Year Treasury Yield climbed to the highest level since last March after data from separate studies in the UK and Israel both showed that the Pfizer vaccine did indeed effectively eliminate the transmission of the coronavirus.
- We're now on the home stretch of another newsworthy REIT earnings season. We'll hear results from a dozen REITs this afternoon and nearly 60 REITs in total throughout the week.
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 were mostly lower Monday as rising bond yields pressured many of the mega-cap technology stocks as encouraging results from vaccine studies suggested a sooner-than-feared return to normalcy. Ending lower for the fifth-straight day for the first time since last February, the S&P 500 ETF (SPY) finished lower by 0.8% today while the Dow Jones Industrial Average (DIA) was higher by 27 points while Small-Caps (SLY) gained 0.6%. Real estate equities were broadly higher today ahead of another frenetic week of earnings reports as the broad-based Equity REIT ETFs (VNQ) finished higher by 0.8% with 13-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 0.7%.
The economically-sensitive GICS equity sectors rallied today as the Energy (XLE) and Financials (XLF) led to the upside. The 10-Year Treasury Yield (IEF) climbed to the highest level since last March after data from separate studies in the UK and Israel both showed that the Pfizer (PFE) vaccine did indeed effectively eliminate the transmission of the coronavirus, suggesting that vaccinated individuals will soon be able to resume normal activities. Within the Hoya Capital Housing Index, a pullback from the homebuilders was offset by solid performance from residential REITs ahead of another busy week of housing data and earnings reports.
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 December which is likely to show a continued reacceleration in home price appreciation. On Wednesday, we'll see New Home Sales data for January, which are expected to continue their strong post-pandemic rebound. On Thursday, we'll see Pending Home Sales as well as the first revision to fourth-quarter GDP. Then on Friday, we'll see Personal Spending & Income data and PCE inflation data for January in addition to a flurry of PMI and Consumer Sentiment data.
Real Estate Earnings Update
Today we published Data Center REITs: Cloud Keeps Growing. Data Center REITs were the best-performing REIT sector in 2020, riding the "work-from-home" tailwinds that powered a surge in cloud spending, but the post-vaccine sector rotation has pressured these high-flyers. Recent earnings reports were solid but not spectacular. Leasing activity - the most closely-watched earnings metric - surged to record highs in Q4, but "same-store" pricing remains flat amid stiff competition. Consistent with the other "essential" property sectors - housing, technology, and logistics - FFO growth was firmly positive in 2020, averaging roughly 4%. With muted pricing power amid stiff competition from the hyperscale giants – Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL) - these REITs will continue to rely heavily on development and M&A to fuel future growth.
We're now on the home stretch of another newsworthy REIT earnings season. Results thus far have generally been better than expected as dividend cuts have given way to dividend boosts. 23 equity REITs have now boosted their dividend this year, the majority of which were among the 52 REITs that increased their dividend last year. Rent collection - and interest collection for mREITs - has recovered to "normalized" levels across all major property sectors outside of retail. The final stretch of earnings season could bring more fireworks as many of the more-troubled REITs have yet to report results.
Self-Storage: This afternoon, we'll hear results from three self-storage REITs: National Storage (NSA), ExtraSpace Storage (EXR), and Life Storage (LSI). Storage demand is driven by "change", and there's been no shortage of that throughout the pandemic. Storage demand has rebounded sharply since mid-summer, helped by the red-hot housing market. Third-quarter earnings reports and interim updates showed momentum building into 2021 and the recent uptick in occupancy rates appears to be more than just deferred move-outs. In addition to move-in/move-out trends, we're interested to hear commentary on supply growth expectations and rental rate metrics, which are poised to turn positive this year if recent trends continue.
Apartments: This afternoon, we'll also hear results from Centerspace (CSR) - formerly Investors Real Estate Trust (IRET) - as well as student housing REIT American Campus (ACC). The "urban exodus" theme has been on full display this quarter as apartment REIT properties in the "shutdown cities" - NYC, L.A., Chicago, and San Francisco – have seen intense pressure on rents as residents flee to lower-cost and "more open" suburban markets and business-friendly Sunbelt metros. Interestingly, while downward rent pressure in the large metros have weighed down the rent indexes at the mean, the median market has seen an acceleration in rent growth over the past year.
We'll also hear results from healthcare REITs Healthcare Trust of America (HTA), National Health (NHI), and Sabra Healthcare (SBRA); net lease REIT Realty Income (O); industrial REIT PS Business Parks (PSB); and cell tower REIT SBA Communications (SBAC). Five more equity REITs and three mortgage REITs boosted their dividends last week. We've now seen 26 REITs boost their dividends since the start of 2021 after 52 REITs raised in 2020.
Mortgage REITs
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.7 today after gains of 0.6% last week. Commercial mREITs finished higher by 1.5% after ending last week with 2.6% gains. Tremont Mortgage (TRMT) surged more than 14% today after it reported last Friday afternoon that it plans to reinstate its quarterly distribution in April 2021. This afternoon, we'll hear results from Invesco Mortgage (IVR).
In addition to results from IVR this afternoon, we'll hear results from another dozen mREITs in the week ahead including iStar (STAR), MFA Financial (MFA), Orchid Island Capital (ORC), Starwood Property (STWD), Ladder Capital (LADR), and Broadmark Realty (BRMK).
REIT Preferreds & Bonds
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by -0.02% today, on average, and underperformed their respective common stock issues by an average of -2.07%. So far in 2021, REIT Preferred stocks are higher by 2.74%. Excluding the handful of retail and hotel REITs with suspended (cumulative) preferred dividends, the average REIT preferred trades at a 3% discount to Par Value and has an average current yield of 6.45%.
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