• Alex Pettee, CFA

REIT Earnings • Spending Setback • Week Ahead

Summary

  • U.S. equity markets finished higher Monday ahead of a frenetic week of corporate earnings reports, employment data, Federal Reserve commentary, and closely-watched elections in Virginia and New Jersey.

  • Following gains of 1.4% last week and climbing to fresh record-highs, the S&P 500 advanced 0.2% today while the Mid-Cap 400 rallied 2.1% and the Small-Cap 600 jumped 2.5%.

  • Real estate equities were mostly higher today with the Equity REIT Index gaining 0.6% today with 16-of-19 property sectors in positive territory while Mortgage REITs gained 1.4%.

  • Employment data highlights the economic calendar in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday.

  • We'll hear results from a dozen REITs this afternoon including Realty Income (O), Simon Property (SPG), Vornado (VNO), Public Storage (PSA), Tanger Outlets (SKT), Agree Realty (ADC), and SBA Communications (SBAC).

Real Estate Daily Recap

U.S. equity markets finished higher Monday ahead of a frenetic week of corporate earnings reports, employment data, Federal Reserve commentary, and closely-watched elections in Virginia and New Jersey. Following gains of 1.4% last week and climbing to fresh record-highs, the S&P 500 advanced 0.2% today while the Mid-Cap 400 rallied 2.1% and the Small-Cap 600 jumped 2.5%. Real estate equities were mostly higher today with the Equity REIT Index gaining 0.6% today with 16-of-19 property sectors in positive territory while Mortgage REITs gained 1.4%.

As discussed in our Real Estate Weekly Outlook, the fate of trillions of dollars of government spending and tax hikes may hinge on several key elections this week that could serve as de-facto referendums on the Biden agenda while Democrat Senator Joe Manchin dealt a fresh setback to the President's plans this afternoon. Nine of the eleven GICS equity sectors finished higher today, led to the upside by many of the more "tax-sensitive" companies across the Mid-Cap and Small-Cap segments. Homebuilders and the broader Hoya Capital Housing Index were among the leaders today ahead of key earnings reports this week across the housing ecosystem.

Employment data highlights the economic calendar in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of 413k in October following last month's disappointing employment growth of 194k and for the unemployment rate to tick lower to 4.7%. We'll also see Construction Spending data on Monday, the Federal Reserve Rate Decision and press conference on Wednesday, and a flurry of Purchasing Managers Index ("PMI") data throughout the week.

Equity REIT Earnings Updates

Last week, we published Halftime Report: Rents Are Absolutely Soaring. We're now at the halfway point of real estate earnings season with roughly 75 REITs reporting third-quarter results this week. Stellar results from residential REITs continue to be the key themes early in earnings season as rents continue to rise at the fastest rate on record across essentially every market. We'll hear results from a dozen REITs this afternoon including Realty Income (O), Simon Property (SPG), Vornado (VNO), Public Storage (PSA), Tanger Outlets (SKT), Agree Realty (ADC), and SBA Communications (SBAC).

Net Lease: Realty Income (O) and VEREIT (VER) today announced the completion of their previously announced merger. The common stock of the combined company will trade under the symbol "O" on the NYSE, beginning today. Under the terms of the merger agreement, VEREIT stockholders are entitled to receive, for each share of VEREIT common stock held, 0.705 shares of Realty Income common stock. Relatedly, the spin-off of the combined office assets into newly-created Orion Office REIT was effective as of October 22nd with November 2 as the record date and November 12 as the distribution date. The spinoff will be done via a pro-rata dividend of one share of Orion for every ten shares of Realty Income.

Mortgage REITs

Mortgage REITs were broadly higher today as residential mREITs gained 1.3%, bouncing back from last week's decline of 1.2%. Commercial mREITs gained 1.6% today following gains of 0.1% this week. Highlights of this week's earnings slate include New Residential (NRZ) and New York Mortgage (NYMT) on Tuesday, Chimera Investment (CIM) and Ares Commercial (ACRE) on Wednesday, PennyMac Mortgage (PMT) and Hannon Armstrong (HASI) on Thursday, and MFA Financial (MFA) on Friday.

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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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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