Tech Wreck • Yields Jump • REIT Earnings
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 sharply lower Thursday as Treasury yields jumped to mid-pandemic highs while investors rotated out of many of the high-flying COVID-winners into more economically-sensitive sectors.
- Reversing yesterday's strong gains, the S&P 500 finished lower by 2.5% today while the Dow Jones Industrial Average declined 560-points while the tech-heavy Nasdaq 100 dipped 3.5%.
- Real estate equities held-up rather well despite the yield-driven sell-off as the broad-based Equity REIT ETFs finished lower by 1.9% with 3-of-19 property sectors in positive territory.
- The "reopening rotation" resulted in some rather violent moves today in the bond markets as the 10-Year Treasury Yield briefly climbed above 1.60% before ultimately closing at 1.52%.
- REIT earnings results continue to come in better-than-expected. Yesterday afternoon, single-family rental REIT American Homes (AMH) boosted its dividend by 100%, becoming the 30th REIT to raise its dividend this year.
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 sharply lower Thursday as Treasury yields jumped to mid-pandemic highs while investors rotated out of many of the high-flying COVID-winners into more economically-sensitive sectors. Reversing yesterday's strong gains, the S&P 500 ETF (SPY) finished lower by 2.5% today while the Dow Jones Industrial Average (DIA) declined 560-points while the tech-heavy Nasdaq 100 (QQQ) dipped 3.5%. Real estate equities held-up rather well despite the yield-driven sell-off as the broad-based Equity REIT ETFs (VNQ) finished lower by 1.9% with 3-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) pulled back by 3.5%.
The "reopening rotation" resulted in some rather violent moves today in the bond markets as the 10-Year Treasury Yield (IEF) briefly climbed above 1.60% before ultimately closing at 1.52%, which was still 13 basis points above yesterday's close. All eleven GICS equity sectors finished lower on the day, dragged to the downside by the Consumer Discretionary (XLY), Technology (XLK), and Materials (XLB) sectors. Meanwhile, a sharp pull-back from homebuilders dragged on the broader Hoya Capital Housing Index despite a solid day from some of the less yield-sensitive segments of the housing market including manufactured housing and single-family rentals.
Real Estate Earnings Update
We're now on the home stretch of another newsworthy REIT earnings season with another frenetic slate of results this afternoon. REITs have generally reported better-than-expected results across the major property sectors and we've seen a wave of dividend boosts in the first two months of this year. Yesterday afternoon, single-family rental REIT American Homes (AMH) boosted its dividend by 100%, becoming the 30th equity REIT to raise its dividend this year and seventh this week.
Cell Towers: American Tower (AMT) finished fractional higher today after rounding out cell tower REIT earnings season this morning with a strong report in which it reported full-year AFFO/share growth of 7.5% in 2020, above prior guidance, and sees AFFO growth accelerating to 8.4% in 2021. AMT joined fellow cell tower REITs Crown Castle (CCI) and SBA Communications (SBAC) in reporting "beats" across the board with property revenues, adjusted EBITDA, and AFFO each topping estimates. Cell Tower REITs continue to benefit from highly favorable competitive positioning within the telecommunication sector and, despite the recent tech-driven sell-off, little has changed over the past quarter to alter that outlook.
Net Lease: EPR Properties (EPR) plunged 7.5% today after reporting yesterday afternoon that it collected just 46% of Q4 rents as the firm continues to struggle to collect rent from their movie theater tenants but did note that its collection rate improved to 66% in January. EPR saw its AFFO/share plunge 65% for full-year 2020, the worst in the REIT sector. Broadstone (BNL) finished lower by about 2% after reporting yesterday afternoon that it collected 99% of Q4 rents but provided a downbeat outlook for 2021 as the firm sees AFFO/share growth of -7.8% after seeing a 2.8% decline for full-year 2020. American Finance (AFIN) finished lower by about 1.5% after reporting yesterday afternoon that it collected 96% of Q4 rents but recorded a full-year decline in AFFO/share of -9.1%. Store Capital (STOR) reports results this afternoon.
Self-Storage: Public Storage (PSA) finished higher by 0.3% after reporting solid results yesterday afternoon, continuing the trend of better-than-expected results from storage REITs as the sector appears to have "turned the corner" in 2020, helped by the red-hot housing market. PSA reported that same-store NOI rose 1.3% while its occupancy rate climbed to 94.2%, which was 250 basis points higher from 4Q19. Storage demand is driven by "change" and there will be no shortage of that as mobility rates normalize post-pandemic. Recent earnings reports and interim updates showed momentum building into 2021. CubeSmart (CUBE) rounds out earnings season this afternoon. 
Cannabis: Innovative Industrial Properties (IIPR) dipped more than 15% today after the best-performing REIT of last year reported results that were shy of analysts' estimates even as the firm reported AFFO per share growth of 53% for full-year 2020. Marijuana has continued along the seemingly unceasing path towards legalization. After the 2020 election, medical usage is now legal in 35 states while recreational usage is legal in 15 states. The ongoing federal prohibition - and the resulting limit on access to traditional banking - has forced cultivators and retailers to turn to alternative sources for capital, including cannabis REITs. Some form of Federal legalization appears likely at some point during the Biden Administration and it's unclear whether the positive demand-effects of legalization will outweigh the negative supply-effects for cannabis REITs.
Yesterday we published Apartment REITs: Tale of Two Americas. Apartment REITs have a front-row seat to the burgeoning economic divide as the "urban exodus" continues to add fuel to the "suburban renaissance." While vaccines may eventually reverse recent dynamics, rental rates and occupancy levels have plunged in the high density, coastal "shutdown cities" that employed more draconian lockdown measures. Meanwhile, Apartment REITs focused on Sunbelt and suburban markets delivered a solid year of FFO and NOI growth in 2020, and rental rates continue to trend higher in early 2021. Outside of the troubled urban metros, national apartment markets have been remarkably resilient throughout the pandemic. Apartment REITs' exposure to the troubled markets is more limited than valuations suggest.
Mortgage REITs
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 3.5% today but remain higher by 1.0% on the week. Commercial mREITs dipped 3.6% but are still higher by 0.8% on the week. TPG RE Finance Trust (TRTX) plunged more than 11% today after reporting yesterday afternoon that its Book Value Per Share (BVPS) declined 1.6% to $16.50 per share in Q4. New York Mortgage Trust (NYMT) finished lower by about 3% despite reporting yesterday afternoon that its BVPS rose 2.8% in Q4 to $4.71. Starwood Properties (STWD) finished lower by roughly 2% after reporting in-line results this morning.
Colony Credit Real Estate (CLNC) dipped more than 7% despite resuming its quarterly dividend at its pre-pandemic rate of $0.10 per share. With the resumption, that leaves just two mREITs that have yet to resume their suspended dividends: Arlington Asset (AAIC) and ACRES Realty (ACR). Four of the 41 mortgage REITs are paying dividends above their pre-pandemic rates: Arbor Realty (ABR), Hannon Armstrong (HASI), NexPoint Real Estate (NREF), and Lument Finance (LFT).
REIT Preferreds & Bonds
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by -0.51% today, on average, but outperformed their respective common stock issues by an average of 2.42%. So far in 2021, REIT Preferred stocks are higher by 2.24% on a price-return basis. 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 6.55%.
Economic Data This week
The busy week of economic data concludes tomorrow when we'll see Personal Spending & Income data and PCE inflation data for January in addition to a flurry of PMI and Consumer Sentiment data. We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.
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