Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Daily Recap: REITs Climb Despite CBL Implosion

US equity markets fell for the third straight day after a series of back-and-forth comments between the U.S. and China called into question the likelihood of a trade deal between the two largest economies ahead of the December 15 tariffs. The S&P 500 ETF (SPY) declined 0.7% while the Nasdaq ETF (QQQ) fell 0.8%, but each closed near their session highs. The 10-Year Treasury Yield (IEF) retreated by 12 basis points on the day to end at 1.71%, matching the lowest closing level since late October. The domestic-focused and yield-senstive equity sectors generally outperformed with the broad-based Real Estate ETF (VNQ) gaining 0.6% on the day. 

Led by the cell tower and storage REIT sectors, thirteen of the fifteen real estate sectors finished the day in positive territory. Mall REITs lagged after high-yielding CBL & Associates (CBL) suspended its dividend on both common and preferred stocks, sending the common stock lower by 25% and slashing half the value from the preferred equities. In our latest report on the mall sector, Mall REITs: Do Or Die Time, we noted that, "the three low-productivity mall REITs [CBL, WPG, PEI] will continue to teeter on the edge of relevancy and believe that a sizable chunk of their malls is a recession away from extinction, highlighting the need for investors to be highly selective in their real estate allocation decisions."

Led by strong performance from the residential REIT sector, the Hoya Capital Housing Index, the benchmark that tracks the performance of the US housing industry, outperformed the broader indexes but still finished the day marginally lower. Senior housing REIT HealthPeak (PEAK), and self-storage REITs ExtraSpace (EXR), Public Storage (NYSE:PSA), and CubeSmart (CUBE) were among the best-performing REITs on the day. Aside from the residential REITs, Redfin (RDFN), Simpson (SSD), and KB Home (KBH) were all higher by at least 1.5% on the day. 

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