Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

REITs Rally | Risk-On | Jobs Week

Daily Recap

  • U.S. equity markets rallied Monday ahead of a frenetic week of economic data and contentious political debate as investors look for a re-entry point with equity indexes in-or-near "correction territory."

  • Coming off four straight weeks of declines, the S&P 500 finished higher by 1.6% today while the tech-heavy Nasdaq 100 jumped 1.9%. The Dow Jones Industrial Average added 410-points.

  • After sliding by 3.1% last week, real estate equities were among the leaders today with the broad-based Equity REIT ETF finishing higher by 2.0% today all 18 sectors in positive-territory.

  • The "shutdown sensitive" property sectors led the gains today. Ashford Hospitality (AHT) jumped 25% today as the firm's corporate governance practices have come into the cross-hairs of proxy voting firm ISS and investment firm Cygnus Capital.

  • Employment data highlights this week's jam-packed economic calendar, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday.

Real Estate Daily Recap

U.S. equity markets rallied Monday ahead of a frenetic week of economic data and contentious political debate as investors look for a re-entry point with equity indexes in-or-near "correction territory." Coming off four straight weeks of declines, the S&P 500 ETF (SPY) finished higher by 1.6% today while the tech-heavy Nasdaq 100 (QQQ) jumped 1.9% and the Dow Jones Industrial Average (DIA) added 410 points. After sliding by 3.1% last week, real estate equities were among the leaders today with the broad-based Equity REIT ETF (VNQ) finishing higher by 2.0% today all 18 property sectors in positive territory. Mortgage REITs (REM) gained 3.3% after last week's 6.1% decline.

As discussed in our Real Estate Weekly Recap, U.S. equity market have been pressured in recent weeks by "supreme uncertainty" amid the contentious U.S. election season and lingering coronavirus concerns as we enter the colder months. Ahead of a critical week of employment data, reports over the weekend brought some glimmers of hope for a stimulus compromise. All 11 GICS equity sectors finished in positive territory today, led by a bounce-back in the economically-sensitive segments including the Financials (XLF), Energy (XLE), and Consumer Discretionary (XLY) sectors. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders today as the housing industry remains a bright spot of the recent economic recovery.

Employment data highlights this week's jam-packed economic calendar, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for employment gains of roughly 850k in August following July's better-than-expected gain of 1.3 million and for the unemployment rate to tick down to 8.2%. We'll see more housing data as well with Pending Home Sales on Wednesday along with the weekly MBA Mortgage Application data. We'll also see Construction Spending data and Personal Income and Spending data on Thursday and a flurry of PMI data throughout the week.

Commercial Equity REITs

It's expected to be a fairly quiet few weeks of REIT newsflow ahead of the start of third-quarter earnings season in the middle of October. We have been seeing several REITs provide interim rent collection updates along with their earnings date press releases. Net lease REIT VEREIT (VER) reported that it received 95% of rents in September and 94% of rents in August, up from 87% collection in the second quarter. Last week, NAREIT released its monthly Rent Collection Survey yesterday which showed continued improvement across the surveyed sectors. Rent collection among net lease REITs has improved from around 70% in April to 95% in September. Collection rates among shopping center REITs have improved from below 50% in April to 82% by September. Apartment REITs continue to report rent collection around 96%. 

After the "shutdown sensitive" property sectors were crushed last week, these REITs were among the leaders of the bounce-back rally today with the hotel, retail, and student housing REITs leading on the upside. Ashford Hospitality (AHT) jumped 25% today as the firm's corporate governance practices have come into the cross-hairs of proxy voting firm ISS and investment firm Cygnus Capital, the largest shareholder in the hotel REIT. Cygnus urged investors to vote "Against" the proposals to amend the company's corporate charter and issue common stock in the exchange offers at its upcoming special meeting on October 6. AHT, one of the few remaining externally-managed REITs, has been the single worst-performing REIT this year. 

Last week, we published Homebuilders: A V-Shaped Vendetta. An antihero of the prior financial crisis, Homebuilders have seemingly been on a vendetta over the last six months, asserting themselves as the unexpected leader of the early post-pandemic recovery. Homebuilders were slammed at the outset of the pandemic on fears that a coronavirus-induced recession could inflame a repeat of the Great Financial Crisis for the critical U.S. housing. Instead, the U.S. housing industry has roared back to life in recent months. New Home Sales, Existing Home Sales, and Home Prices have all seen a substantial reacceleration this year. The sharp rebound in housing market activity has been aided by longer-term macroeconomic trends of favorable millennial-led demographics, historically low housing supply, and record low mortgage rates.

Mortgage REITs

As tracked in our Mortgage REIT Tracker available to iREIT on Alpha subscribers, residential mREITs finished higher by 1.8% today after sliding by 4.0% last week. Commercial mREITs gained 4.9% today after ending last week lower by 3.9%. Granite Point (GPMT), one of the worst-performing mREITs on the year, jumped more than 16% today after it announced the closing of strategic financing of up to $300 million. 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 2.30% today, on average, but underperformed their respective common stock issues by an average of 1.52%. The preferred issues of Ashford Hospitality (AHT) and CBL & Associates (CBL) led the gains today. AHT and CBL are two of the six REITs that have suspended their preferred dividends. Among REITs that offer preferred shares, the performance of these securities has been an average of 20.86% 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.

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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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