- U.S. equity markets finished lower Tuesday following yesterday's robust rally as large-cap technologies were under renewed pressure while investors remain skittish about rising inflation expectations.
- Giving back some of its 2.4% gains from yesterday, the S&P 500 ETF finished lower by 0.8% today while the Dow Jones Industrial Average declined by 144 points.
- Real estate equities were mostly lower as well today despite strength from residential REITs as the broad-based Equity REIT ETFs finished off by 0.8% with 14-of-19 property sectors in negative-territory.
- Diversified REIT Preferred Apartment Communities (APTS) finished lower by about 1% after reporting that its apartment portfolio continues to perform well, but its retail portfolio drove a nearly 30% decline in Core FFO.
- Uniti Group (UNIT) - which owns a communications fiber network - finished lower by more than 4% after reporting that its full-year AFFO/share growth slid more than 17% in 2020.
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 finished lower Tuesday following the best day for the S&P 500 in nine months as large-cap technologies were under renewed pressure while investors remain skittish about rising inflation expectations. Giving back some of its 2.4% gains from yesterday, the S&P 500 ETF (SPY) finished lower by 0.8% today while the Dow Jones Industrial Average (DIA) declined by 144 points. Real estate equities were mostly lower as well today despite strength from residential REITs as the broad-based Equity REIT ETFs (VNQ) finished off by 0.8% with 14-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) gained 0.6%.
Bond markets have calmed following last week's volatility as the 10-Year Treasury Yield (IEF) declined by 3 basis points to close at 1.42%. Ten of the eleven GICS equity sectors finished lower on the day, dragged on the downside by the Technology (XLK), Consumer Discretionary (XLY), and Communications (XLC) sectors. Homebuilders and the broader Hoya Capital Housing Index were an area of strength today while housing-related financials were led by a surge in Rocket Companies (RKT) as the largest mortgage lender in the U.S. has rallied since reporting strong results last week as the housing industry continues to lead the early economic recovery.
Real Estate Earnings Update
Net Lease: Today, we published Net Lease REITs: Rising Rates Not A Concern Yet. 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. 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. Despite their heavy retail and restaurant exposure, net lease REITs - with some exceptions - fared far better than their retail REIT peers with rent collection "normalizing" by late 2020. On cue, Agree Realty (ADC) reported today that it collected 99% of rents in February, consistent with its collection rate in Q4.
Apartments: Diversified REIT Preferred Apartment Communities (APTS) finished lower by about 1% after reporting results yesterday afternoon. While the firm's apartment portfolio performed quite well in 2020 with positive same-store NOI growth of 0.7% for the year, the firm's shopping center portfolio dragged on its aggregate results, driving a 28.2% decline in Core FFO. The firm sees more of the same in 2021 as it expects its same-store NOI growth from its multifamily communities to be higher by 1.5% - 3.0%, but still sees firm-level Core FFO growth declining another 20% in 2021. Last week, we published Apartment REITs: Tale of Two Americas that analyzed that burgeoning economic divide as the "urban exodus" continues to add fuel to the "suburban renaissance."
Cell Towers: Uniti Group (UNIT) - which owns a communications fiber network - finished lower by nearly 4% after reporting results yesterday afternoon. In stark contrast to the other three traditional tower REITs, UNIT reported that its full-year AFFO/share growth slid more than 17% in full-year 2020, but sees a rebound in 2021. Last year, UNIT settled a dispute with its largest tenant - Windstream Holdings - under which Windstream will continue the long-term lease while gaining an investment of up to $1.75 billion over 10 years from Uniti. While traditional Cell Tower REITs continue to benefit from highly favorable competitive positioning within the telecom sector, the competitive dynamic of the communications fiber business is less favorable.
Single Family Rentals: This afternoon, we'll publish our quarterly update on the Single Family Rental REIT sector. Riding the tailwinds of the red-hot U.S. housing market, single-family rental REITs have been one of the top-performing real estate sectors throughout the pandemic. Fueled by the maturing millennial generation, the 2020s were already poised to be a decade of "suburban revival" and behavioral changes in the post-coronavirus world have provided an added spark. We'll focus the report on the enormous impact of real estate technology in enabling the formation and fueling the future growth of the sector over the next decade.
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.0% today to push their weekly gains to 2.1%. Commercial mREITs gained 0.1% and are now higher by 2.3% on the week. Ready Capital (RC) led the way today with 3.2% gains after it declared a $0.30 per share dividend, in accordance with its planned merger with Anworth Mortgage (ANH). 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 0.29% today, on average, and outperformed their respective common stock issues by an average of 0.38%. So far in 2021, REIT Preferred stocks are higher by 3.13% 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 6.48%.
Economic Data This Week
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.
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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.
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