- U.S. equity markets climbed to record highs Thursday as interest rates were held in-check by weakness in European economies even as President Biden signed an additional $1.9 trillion stimulus into law.
- Closing at fresh record-highs, the S&P 500 finished higher by 1.0% while the tech-heavy Nasdaq 100 rallied 2.5% after dipping into "correction territory" earlier this week.
- Real estate equities were broadly higher today- led by technology and housing REITs- as the broad-based Equity REIT ETFs gained 1.2% with 13-of-19 property sectors in positive territory.
- Mall REIT Seritage Growth (SRG) finished lower after reporting that its NOI plunged by 48% in 2020. Manufactured housing REIT UMH Properties (UMH) reported a strong quarter with NOI growth of 15% in full-year 2020.
- Mortgage REITs continued their strong week after Redwood Trust (RWT) boosted its dividend by 14% to $0.16 per share. Ready Capital (RC) rounds-out mREIT earnings season this afternoon.
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 climbed to record highs Thursday as interest rates were held in-check by relative weakness in European economies even as President Biden signed an additional $1.9 trillion stimulus package into law. Closing at fresh record-highs, the S&P 500 ETF (SPY) finished higher by 1.0% while the tech-heavy Nasdaq 100 (QQQ) rallied 2.5% after dipping into "correction territory" earlier this week. Real estate equities were broadly higher - led by technology and housing REITs - as the broad-based Equity REIT ETFs (VNQ) finished higher by 1.2% with 13-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 0.6%.
The fresh record-highs come exactly one year after the WHO officially classified the COVID-19 outbreak as a "pandemic" and while the U.S. economy appears poised to full-recover lost output this year, international economies are likely to see a slower recovery. Ongoing issues with the vaccine rollout in the European Union put downward pressure on the 10-Year Treasury Yield (IEF) after jumping above 1.60% earlier in the week. Eight of the eleven GICS equity sectors finished higher today, led to the upside by the Technology (XLK) and Communications (XLC) while another strong day from the PropTech firms Zillow (Z) and Redfin (RDFN) powered the Hoya Capital Housing Index to fresh records as well.
Commercial Equity REITs
Today we published Shopping Center REITs: Too Far, Too Fast? Shopping Center REITs have continued their post-vaccine resurgence into early 2021, surging another 30% this year and pushing stock prices back near pre-pandemic levels. Shopping center REITs fared far better than their enclosed mall peers but still reported an average FFO/share decline of nearly 20% in 2020 while same-store NOI dipped over 10%. It's too soon to declare victory, however. WWII-levels of fiscal stimulus powered retail sales to record highs in 2020, but while the "big boxes" are thriving, service-oriented "small-shop" retailers were annihilated by lockdowns. Valuations currently appear extended as REITs that provided guidance see only modest growth in 2021.
Malls: Seritage Growth (SRG) finished lower by about 1% today after reporting results yesterday afternoon. SRG noted that its rent collection rate improved to 93% in Q4, but still reported sharply negative FFO growth in full-year 2020 as its total NOI plunged by 48%. 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.
Manufactured Housing: UMH Properties (UMH) finished roughly flat today after reporting results yesterday afternoon. The small-cap REIT - which has a portfolio of manufactured housing communities in the Appalachian Shale region - reported a strong fourth quarter with same-property NOI ending 2020 higher by 15%, driven by strong occupancy gains. UMH reported FFO per share growth of 3.3% in 2020, roughly in-line with its larger peers, Sun Communities (SUI) and Equity LifeStyle (ELS). Manufactured housing REITs outperformed the REIT index for a remarkable seventh-straight year in 2020 and delivered another impressive quarter in Q4.
Earlier this week, we published 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.
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.8% to push their weekly gains to 4.2%. Commercial mREITs gained 0.8% today and are now higher by 5.2% on the week. Redwood Trust (RWT) gained nearly 4% today after it boosted its dividend by 14% to $0.16 per share, but this rate is still below its 2019 rate of $0.21 per share. We'll hear results from Ready Capital (RC) this afternoon.
REIT Preferreds & Bonds
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 1.03% today, on average, and outperformed their respective common stock issues by an average of 0.49%. So far in 2021, REIT Preferred stocks are higher by 5.01% 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 6.37%.
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.
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