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. Sign-up for 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 and subscribe to The REIT Forum for full access to our premium analysis, exclusive tools and trackers, and The REIT Forum's exclusive ratings and model portfolios.
U.S. equity markets finished mostly higher Wednesday with the Dow eclipsing fresh record-highs after cooler-than-expected CPI data curbed inflation concerns ahead of another round of fiscal stimulus. Following gains of 1.4% yesterday, the S&P 500 ETF (SPY) finished higher by 0.6% while the tech-heavy Nasdaq 100 (QQQ) finished lower by 0.4% following yesterday's strong rally. Real estate equities were broadly higher today led by timber and retail REITs as the broad-based Equity REIT ETFs (VNQ) finished higher by 1.0% with 15-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 1.6%.
The back-and-forth action associated with the "reopening trade" continued today as ten of the eleven GICS equity sectors finished in positive territory today, led by the economically-sensitive Energy (XLE), Financials (XLF), and Materials (XLB) sectors. Departing from recent correlations, however, these economically-sectors rallied despite a pull-back in the 10-Year Treasury Yield (IEF) which declined 3 basis points following cooler-than-expected inflation data this morning. Homebuilders and the broader Hoya Capital Housing Index delivered a strong day, led by a 5% jump from Toll Brothers (TOL), which boosted its dividend by 55% yesterday afternoon.
All eyes are on inflation data as investors remain skittish about a potential "overheating" U.S. economy from COVID-related fiscal stimulus measures and the implications for interest rates, inflation, and equity valuations. Inflation expectations - and long-term interest rates - jumped to mid-pandemic highs earlier this month, but pulled back today after the BLS reported this morning that the Core Consumer Price Index was cooler-than-expected with just a 0.1% in February, pulling the annual increase down to 1.28%. The "headline" CPI index recorded a 0.4% increase in January, however, as gasoline and fuel prices jumped from last month, but the headline CPI Index is still higher by just 1.67% over the past year.
Commercial Equity REITs
Shopping Centers: Retail Value (RVI) finished higher by nearly 3% today after reporting results this morning - the final shopping center REIT to report Q4 earnings. RVI - a small-cap REIT which owns a portfolio split between Puerto Rico and the U.S. - reported the most significant year-over-year decline in FFO per share at -38%, which was attributable to the impact of the COVID-19 pandemic and asset sales. Shopping center REITs - which were not hit nearly as hard as their enclosed mall peers - reported an average full-year FFO/share decline of 19% in 2020, and 2021 guidance calls for a muted positive inflection in 2021. We'll publish our quarterly update on the Shopping Center REIT sector later this evening on The REIT Forum.
Malls: Seritage Growth (SRG) reports results this afternoon. Despite a historic plunge in FFO, NOI, and occupancy rates throughout 2020, the higher-productivity mall REITs - Simon Property (SPG) and Macerich (MAC) - have caught a bid this year as rent collection trended towards 90% in Q4. The troubles continue for the three lower-productivity mall REITs, however, which are among the only REITs yet to report Q4 results. Washington Prime (WPG) is reportedly poised to join Pennsylvania REIT (PEI) and CBL & Associates (CBL) as the third mall REIT in the past year to declare bankruptcy.
As discussed in Dividends Raised, Rents Paid: REIT Earnings Recap, whether it's the "reopening trade" or the "Rates Up, REITs Down" phenomenon, our analysis shows that macro-driven phenomena tend to result in exaggerated near-term price moves in individual REITs and property sectors which are often not warranted by micro-level fundamentals. As the post-vaccine rotation has narrowed the valuation gap between the higher-quality and lower-quality REITs, we see a compelling case for bolstering one's positioning in the "essential" property sectors like housing and technology that are delivering superior growth rates - which becomes particularly important if we do indeed see sustained inflationary pressure.
Mortgage REITs
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 1.1% to push their weekly gains to 3.4%. Commercial mREITs gained 2.0% today and are now higher by 4.3% on the week. This afternoon, Cherry Hill Mortgage (CHMI) declined more than 4% today after reporting Q4 results yesterday afternoon. CHMI noted that its Book Value Per Common Share (BVPS) ended the quarter lower by 4.9% at $11.16. As discussed in our Earnings Recap, residential mREITs reported an average rise in tangible Book Value Per Share (BVPS) of 5% in Q4 while commercial mREITs reported BVPS gains averaging 3%.
REIT Preferreds & Bonds
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.64% today, on average, but underperformed their respective common stock issues by an average of -0.62%. So far in 2021, REIT Preferred stocks are higher by 4.31% on a price-return basis. Excluding the handful of 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 6.41%.
Economic Data This Week
Inflation data highlights the economic calendar this week with the Consumer Price Index report released on Wednesday and the Producer Price Index report on Friday. Inflation expectations - along with longer-term Treasury Yields - have rebounded sharply since Election Day on the prospects for additional fiscal stimulus and on improving coronavirus data, but recent inflation reports have yet to show a broad-based uptick in either consumer or producer price levels. We'll also be watching the weekly MBA Mortgage Application data on Wednesday and Jobless Claims data on Thursday.
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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.
I am/we are long all holdings listed at www.HoyaCapital.com