Stocks Rebound • REIT Earnings • Week Ahead

Summary

• U.S. equity markets rallied Monday following the approval of a third coronavirus vaccine in the U.S. and as bond market volatility eased after last week's jump in interest rates.
• Recovering from declines of 2.5% last week, the S&P 500 finished higher by 2.4% today - its best day since June - while the Dow Jones Industrial Average rallied 600-points.
• Real estate equities and other yield-sensitive sectors were mostly positive but underperformed the broad-based indexes today as the broad-based Equity REIT ETFs finished higher by 0.4% with 13-of-19 property sectors higher.
• We're now on the home stretch of another newsworthy REIT earnings with 95% of the REIT sector now having reported results with another dozen REITs set to report this week including Preferred Apartments (APTS) and Uniti Group (UNIT) this afternoon.
• Employment data highlights this week's busy economic calendar, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday.

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 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 rallied Monday following the approval of a third coronavirus vaccine in the U.S. and as bond market volatility eased following last week's jump in interest rates. Recovering from declines of 2.5% last week, the S&P 500 ETF (SPY) finished higher by 2.4% today while the Dow Jones Industrial Average (DIA) rallied more than 600 points. Real estate equities and other yield-sensitive sectors were mostly positive but underperformed the broad-based indexes today as the broad-based Equity REIT ETFs (VNQ) finished higher by 0.4% with 13-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 1.6%.

As discussed in our Real Estate Weekly Outlook, all eyes were on the 10-Year Treasury Yield (IEF) last week after the benchmark yield briefly surged above 1.60% before retreating back below 1.50% by end of the week. Stabilizing interest rates appeared to calm jitters as all eleven GICS equity sectors finished higher on the day, led to the upside by the Financials (XLF), Technology (XLK), and Energy (XLE) sectors. A strong day from real estate financials and PropTech firms lifted the Hoya Capital Housing Index to solid gains despite a muted day from the homebuilders and residential REITs.

Employment data highlights this week's busy 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 job growth of 165k in February, accelerating from the modest 49k in job gains in January while the unemployment rate is expected to remain steady at 6.3%. We'll also see the weekly MBA Mortgage Application data on Wednesday, and a flurry of PMI data throughout the week.

Real Estate Earnings Update

Today, we published Net Lease REITs: Rising Rates Not A Concern Yet on The REIT Forum Marketplace.  Following a punishing sell-off early in the pandemic, Net Lease REITs have displayed notable resilience in the face of stiff macroeconomic headwinds and entered 2021 with momentum at their backs. Before the pandemic, Net Lease REITs performance was largely determined by movements in long-term interest rates due to their bond-like nature and reliance on low-cost capital to fuel external growth. For now, macroeconomic conditions remain in the "Goldilocks zone" and net lease REITs should be beneficiaries of the reopening trade so long as rates are rising for the "right" reasons: economic growth expectations rather than inflation.

We're now on the home stretch of another newsworthy REIT earnings with 95% of the REIT sector now having reported results with another dozen REITs set to report this week including Preferred Apartments (APTS) and Uniti Group (UNIT) this afternoon. REITs have generally reported better-than-expected results across the major property sectors and we've seen a wave of dividend boosts through the first two months of 2021 as 33 REITs have now raised their payouts which is already two-thirds of the total from all of 2020.

Hotels: Xenia Hotels (XHR) finished lower by nearly 6% today after reporting results this morning. The upscale-focused hotel REIT saw muted occupancy gains in the fourth quarter but echoed the optimistic sentiment of many other hotel operators that expect a recovery to profitability in the back-half of 2021. Among the thirteen REITs to report results thus far, occupancy rates are almost exactly in-line with the prior quarter at roughly 30% compared to the 70% rate that is typical in fourth quarters. 

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.1% today after gaining 1.0% last week. Commercial mREITs rallied 2.2% following gains of 0.8% last week. Mortgage REIT earnings season wraps-up this week with the final half-dozen reports including from Western Asset (WMC) on Wednesday, and we'll see results from Granite Point Mortgage (GPMT), Great Ajax (AJX), and ACRES Capital (ACR) on Thursday.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.26% today, on average, but underperformed their respective common stock issues by an average of 0.38%. So far in 2021, REIT Preferred stocks are higher by 2.90% on a price-return basis. Excluding the handful REITs with suspended (cumulative) preferred dividends, the average REIT preferred issue trades at a 3% discount to Par Value and has an average current yield of 6.50%.

Announcement: Hoya Capital Joins The REIT Forum

Hoya Capital is excited to announce that we’ve teamed up with The REIT Forum to bring the premier research service on Seeking Alpha to the next level. Exclusive articles contain 2-3x more research content including access to The REIT Forum's exclusive ratings and live trackers and valuation tools. Sign up for the 2-week free trial today! The REIT Forum offers unmatched coverage and top-quality model portfolios for Equity and Mortgage REITs, Real Estate ETFs and CEFs, High-Yield BDCs, and REIT Preferred Stocks & Bonds.

Join our Mailing List on our Website

The REIT Forum is the exclusive home to Hoya Capital premium research. Visit our website and join our email list for quick access to our real estate research library: HoyaCapital.com where we have links to all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

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