Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Real Estate Rallies On Strong Earnings [Daily Recap]

  • U.S. equity markets retreated from record-highs on another busy day of corporate earnings and M&A developments as investor attention remains focused on the economic fallout of the ongoing coronavirus outbreak.

  • Following 0.5% gains yesterday, the S&P 500 finished lower by 0.3% and the Dow Jones Industrial Average retreated by 128 points while the 10-Year Treasury Yield declined 4 basis points to 1.53%.

  • Reversing yesterday's underperformance, the domestic and yield-oriented sectors were the winners today, led residential and commercial real estate. The broad-based commercial Real Estate ETF (VNQ) gained 1.2%.

  • Zillow surged more than 15% after reporting surprisingly strong Q4 earnings with revenues rising 106% for the year, powered by a rapid expansion in their Zillow Offers business and growth in the Premier Agent business.

  • Citing tailwinds associated with the affordable housing shortage, manufactured housing REIT Sun Communities climbed nearly 3% after reporting strong quarterly results and projected another year strong NOI and FFO growth.

Real Estate Daily Recap

U.S. equity markets retreated from record-highs on another busy day of corporate earnings and M&A developments as investor attention remains focused on the economic fallout of the ongoing coronavirus outbreak. Following gains of 0.5% yesterday, the S&P 500 ETF (SPY) finished lower by 0.3% and the Dow Jones Industrial Average (DIA) retreated by 128 points while the 10-Year Treasury Yield (IEF) declined 4 basis points to close at 1.53%. Reversing yesterday's underperformance, the domestic and yield-oriented sectors were the winners today, led residential and commercial real estate. The broad-based commercial Real Estate ETF (VNQ) gained 1.2% today as earnings results have generally topped estimates across most REIT sectors, led today by the manufactured housing, mall, and prison REITs.

The Hoya Capital Housing Index, the benchmark that tracks the performance of the US Housing Industry, gained more than 1% to close at fresh record highs on a busy day of housing earnings. Zillow (Z) surged more than 15% after reporting surprisingly strong Q4 earnings with revenues rising 106% for the year, powered by a rapid expansion in their Zillow Offers business and growth in the Premier Agent business. Citing tailwinds associated with the affordable housing shortage, manufactured housing REIT Sun Communities (SUI) climbed nearly 3% after reporting strong quarterly results and projected another year of REIT-leading growth with same-store NOI and Core FFO expected to rise 6.4% and 6.7% at the midpoint.

Among equity sector ETFs, the Commerical Real Estate (VNQ), Utilities (XLU), and Materials (XLB) sectors led the way on the day while the Communications (XLC), Technology (XLK), and Healthcare (XLV) sectors lagged. For the year, REITs are now higher by 7.0% compared to the 4.7% gains from the S&P 500. As discussed in our recent 2019 Real Estate Recap, REITs delivered their second-best year of the decade in 2019, delivering a total return of nearly 29% compared to the 31% returns from the S&P 500.

On the commercial REIT side, we're in the midst of the busiest 24-hours of earnings season. Data center REIT CyrusOne (CONE) rallied nearly 4% despite reporting disappointing results yesterday afternoon after the company announced the departure of CEO Gary Wojtaszek, which was viewed as a sign that the company is more likely to move forward on a long-anticipated sale of the company. Net lease REIT Store Capital (STOR) finished higher by 1% after reporting in-line results this morning. Industrial REIT Lexington Realty (LXP) gained more than 2% after reporting better-than-expected 4Q results this morning. Billboard REIT Lamar Advertising (LAMR) finished higher by 1% after reporting in-line results, and forecasting 2020 AFFO to grow 5.6% at the midpoint.

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