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  • Alex Pettee, CFA

Mall SPAC • Shorts Fizzle • Earnings Update

Summary

  • U.S. equity markets finished sharply higher Tuesday for the second-straight day as the short-squeeze frenzy continued to fizzle ahead of a busy slate of big-tech earnings and employment data.

  • Adding to gains of 1.7% yesterday, the S&P 500 finished higher by 1.4% today while the Dow Jones Industrial Average rallied 476 points.

  • Real estate equities were mostly-higher as the broad-based Equity REIT ETFs finished higher by 0.6% today with 12 of 19 property sectors in positive territory while mortgage REITs rallied 2.0%.

  • Shares of the most heavily-shorted names at the center of the short-squeeze frenzy continued to tumble back down to earth today. Mall REIT Macerich (MAC) has plunged by nearly 45% from its highs last week.

  • Earnings from Brookfield Property (BPYU) added to the pressure on mall REITs. BPYU reported a -25.5% plunge in same-store NOI in their retail segment and a 45.6% dive in retail FFO, similar to the preliminary results from Macerich on Monday.

Real Estate Daily Recap

U.S. equity markets finished sharply higher Tuesday for the second-straight day as the short-squeeze frenzy continued to fizzle ahead of a busy slate of big-tech earnings and employment data later this week. Adding to gains of 1.7% yesterday, the S&P 500 ETF (SPY) finished higher by 1.4% today while the Dow Jones Industrial Average (DIA) rallied 476 points. Real estate equities were mostly-higher on the day as well despite pressure on the recently high-flying mall REITs. The broad-based Equity REIT ETFs (VNQ) finished higher by 0.6% today with 12 of 19 property sectors in positive territory while Mortgage REITs (REM) rallied 2.0%, which we discussed today in our report: Mortgage REITs: Short-Squeeze Nightmares.

Shares of the most heavily-shorted names at the center of the short-squeeze frenzy continued to tumble back down to earth today as GameStop (GME) is now 74% below its recent highs while mall REIT Macerich (MAC) has plunged by nearly 45% from its highs last week. For the second-straight day, all eleven GICS equity sectors finished higher on the day, led today by the Financials (XLF), Consumer Discretionary (XLY), and Industrials (XLI) sectors. Homebuilders and the broader Hoya Capital Housing Index also gained following strong results from M/I Homes (MHO), which reported a 27% jump in order growth while the size of its backlog swelled by 64% from last year.

Real Estate Earnings Updates

Last week we published REIT Earnings Preview: Who Paid The Rent? Real estate earnings season hits high-gear this week while more than 175 equity REITs, 40 equity REITs, and dozens of housing industry companies reporting earnings over the next five weeks. While missed rents and dividend cuts were the prevailing themes in the REIT sector in mid-2020, the vaccine-driven sector rotation has been the dominant theme over the past quarter. Normalizing rent collection and positive dividend commentary could be a positive catalyst to continue the recovery. We expect a historic year for dividend increases following the wave of pandemic-related cuts.

Malls: Brookfield Property (BPYU) finished higher by 0.2% today after reporting results this morning. The diversified REIT has been pressured by its heavy retail exposure - primarily enclosed malls - which make up roughly 40% of its portfolio. BPYU reported a -25.5% plunge in same-store NOI in their retail segment and a 45.6% dive in retail FFO, pressured by a substantial 3.9 percentage-point decline in occupancy rates from last year and depressed levels of rent collection. The retail pain was muted by a more modest -2.4% decline in same-store NOI in their office segment. Yesterday, Macerich (MAC) reported that its SSNOI dipped by 33.3% in Q4 while its FFO plunged 39%.

Also of note today in the mall sector, Simon Property Group (SPG) formed a Special Purpose Acquisition Vehicle ("SPAC"), a so-called "blank check company" with a target value of $300 million. Per Renaissance Capital's IPO Preview, Simon Property Group Acquisition plans to list on the NYSE under the symbol SPGS.U and its strategy is to "target a company or assets with significant growth potential and prospects to create value in the public markets." The target is likely to be in an industry that will "benefit from the experience, expertise, and operating skills of the management team and SPG." As discussed in our Mall REIT report, desperate times call for desperate measures, and we have been encouraged to finally see some "fight" and creativity from mall REIT executives amid an ongoing wave of store closures.

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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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