Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

October Surprise | REITs Rebound | Jobs Report

Daily Recap

  • U.S. equity markets dipped Friday after President Trump announced he tested positive for coronavirus but stocks rebounded from overnight lows after a solid employment report and hopes of a stimulus-compromise.

  • Hanging on to gains of 1.6% on the week and snapping a four-week losing streak, the S&P 500 finished lower by 1.0% today while the tech-heavy Nasdaq 100 dipped 2.8%.

  • Ending the week with gains of nearly 5%, the broad-based Equity REIT ETF (VNQ) finished higher by 1.7% with all 18 property sectors in positive territory.

  • The BLS reported that the U.S. economy added 661k jobs in September - slightly below economists' estimates for gains of 860k. Private payrolls, however, actually beat estimates with gains of 887k while the unemployment rate dipped below 8%.

  • We'll have a full recap of the reasons behind the REIT rally and an analysis of this week's busy slate of economic data in our Real Estate Weekly Outlook report published Saturday morning.

Real Estate Daily Recap

U.S. equity markets dipped Friday after President Trump announced he tested positive for coronavirus but stocks rebounded from overnight lows after a solid employment report and hopes of a stimulus compromise. Hanging on to gains of 1.6% on the week and snapping a four-week losing streak, the S&P 500 ETF (SPY) finished lower by 1.0% today while the tech-heavy Nasdaq 100 (QQQ) dipped 2.8% and the Dow Jones Industrial Average (DIA) declined 134 points. Ending the week with gains of nearly 5%, real estate equities were again among the leaders today as the broad-based Equity REIT ETF (VNQ) finished higher by 1.7% with all 18 property sectors in positive territory. Mortgage REITs (REM) gained 1.5% to end the week with 4% gains.

Interestingly, there were pockets of strength amid the increased uncertainty as investors attempt to price-in the first-order and secondary effects of the developing news on the upcoming election and on the prospects of compromise on stimulus negotiations. Small-Cap (SLY) and Mid-Cap (MDY) stocks caught a bid today as 6 of the 11 GICS equity sectors finished higher today while residential REITs led the Hoya Capital Housing Index to another day of strong gains following another strong slate of housing data this week. We'll have a full recap of the reasons behind the REIT rally and an analysis of this week's busy slate of economic data in our Real Estate Weekly Outlook report published Saturday morning.

The Bureau of Labor Statistics reported this morning the U.S. economy added 661k jobs in September - slightly below economists' estimates for gains of 860k, but private payrolls actually beat estimates with gains of 887k. The prior two months were revised higher by 145k, on net. The "headline" unemployment rate ticked down to 7.9% from 8.4% in the prior month, also better than estimates. Even with the rebound of 11.4 million jobs over the last five months, however, total nonfarm payrolls are still roughly 10.7 million below pre-pandemic levels and the pace of the rebound has slowed in recent months. This follows ADP data earlier in the week which showed that 749k jobs were added in September - above expectations of 430k.

There may still be some more "low-hanging-fruit" left in the rebound as roughly 55% of recent job losers continue to classify themselves as on "temporary layoff" totaling over 4.6 million, which is down from a peak of 18 million back in April. Permanent employment losses, however, increased another 345k in September and have increased by roughly 2.5 million above the pre-pandemic rates in late 2019. We've remained quite a bit more optimistic than consensus on the employment and economic outlook, urging investors not to underestimate the "unstoppable force" of WWII-levels of fiscal stimulus and the unprecedented levels of monetary support, both of which we expect to continue despite the stalemate in fiscal talks ahead of the election.

Commercial Equity REITs

We heard a handful of rent collection and business updates over the last 24 hours as the REIT sector gears up for the start of Q3 earnings season in two weeks. Realty Income (O) announced that it collected 93.8% of September rents, roughly in-line with August and up from its collection rate of roughly 88% in Q2. Fellow net lease REIT NetSTREIT (NTST) collected 99.5% of September rent payments, bringing total Q3 rent collections to 98.0%.

Earlier this week, we published Hotel REITs: Winter Is Coming. Hotel ownership is a tough, capital-intensive business even in the best of times, and hotel REITs tend to be "overweight" in the most affected segment of the lodging industry: corporate travel, group bookings, and international tourism. Demand from these segments is closely correlated with domestic air travel, which has exhibited a slow recovery from its lows in April according to TSA Checkpoint data. Airline travel bottomed in early April at just 4% of its prior-year levels but has rebounded to roughly 35% of "normal" by late September. Following a record year for the industry in 2019, hotels REITs reported occupancy rates below 20% in Q2, but occupancy has recovered to roughly 45% by early September according to recent reports.

Mortgage REITs

As tracked in our Mortgage REIT Tracker, residential mREITs finished higher by 1.8% today to end the week higher by 1.2%. Commercial mREITs gained 1.4% today to finish the week higher by 5.0%. Out of the 41 mREITs in our coverage, 31 reduced or suspended dividends, 8 have maintained, and 2 have raised. Last month, we published our Mortgage REIT Earnings Recap where we discussed some of the broader trends in the mREIT industry.

REIT Preferreds & Bonds

As tracked in our all-new REIT Preferred Stock & Bond Tracker available to iREIT on Alpha subscribers, REIT Preferred stocks finished higher by 0.27% today, on average, but underperformed their respective common stock issues by an average of 1.39%. Among REITs that offer preferred shares, the performance of these securities has been an average of 19.91% higher in 2020 than their respective common shares. Preferred stocks generally offer more downside protection, but in exchange, these securities offer relatively limited upside potential outside of the limited number of “participating” preferred offerings that can be converted into common shares.

This Week's Economic Calendar

We'll have a full recap of this week's busy slate of economic data in our Real Estate Weekly Outlook report published on Saturday morning. 

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iREIT on Alpha is the exclusive home to Hoya Capital premium research. Visit our website and join our email list for quick access to our real estate research library: HoyaCapital.com where we have links all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

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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