Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

REITs Steady As Stocks Dive [Daily Recap]

  • U.S. equity markets suffered steep declines on Monday as investors continued to pile into safe-haven assets on mounting fears over the economic fallout from the coronavirus outbreak.

  • Coming off 1.2% declines last week, the S&P 500 finished lower by 3.2% while the Dow Jones Industrial Average dipped by more than 1,000 points, the worst day in two-years.

  • The 10-Year Treasury Yield dipped another 9 basis points to 1.38%, flirting with the all-time intraday low of 1.325% from 2016. The domestic-focused, yield-sensitive sectors were relative winners today.

  • The broad-based commercial Real Estate ETF (VNQ) outperformed by a wide margin, finishing lower by "just" 1.4% on the day ahead of another jam-packed week of real estate earnings results.

  • The continued strength of the domestic housing and real estate industry - which helped to power the economy up the "wall of worry" last year - will be asked to shoulder even more of the burden of global economic growth in the early stages of 2020.

Real Estate Daily Recap

U.S. equity markets suffered steep declines on Monday as investors continued to pile into safe-haven assets on mounting fears over the economic fallout from the coronavirus outbreak. Coming off 1.2% declines last week, the S&P 500 ETF (SPY) finished lower by 3.2% while the Dow Jones Industrial Average (DIA) dipped by more than 1,000 points. The 10-Year Treasury Yield (IEF) plunged another 9 basis points to 1.38%, flirting with the all-time intraday low of 1.325% on July 6, 2016. The domestic-focused, yield-sensitive sectors including real estate, housing, and utilities were the relative winners on the day. The broad-based commercial Real Estate ETF (VNQ) finished lower by "just" 1.4% on the day ahead of another jam-packed week of real estate earnings results.

The continued strength of the domestic housing industry - which helped to power the economy up the "wall of worry" last year - will be asked to shoulder even more of the burden of global economic growth in the early stages of 2020. The Hoya Capital Housing Index, the benchmark that tracks the performance of the US Housing Industry, was also a relative outperformer, declining by 2.0%. Armstrong World Industries (AWI) was a relative winner today after the homebuilding products supplier reported better-than-expected results and solid guidance, seeing net Sales growth of 6-8% in 2020. Trex Companies (TREX) reports results after the close this afternoon, and we'll see key reports from Home Depot (HD) and Lowe's (LOW) later on this week. Home Price data on Tuesday, New Home Sales on Wednesday, and Pending Home Sales on Thursday will be key housing data released this week.

"Risk-off" and a flight to domestic-focused, safe-haven assets was the clear pattern today within the equity markets. Among sector ETFs, the Utilities (XLU), Commerical Real Estate (VNQ), and Consumer Staples (XLP) were the relative winners today while the Energy (XLE) and Technology (XLK) sectors were down sharply as Crude Oil (USO) prices were lower by nearly 4%. For the year, REITs are now higher by 5.8% compared to the 0.4% 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% total returns from the S&P 500.

Self-storage REITs managed to eke out a gain today, the lone REIT sector in positive territory. Skilled nursing REIT Sabra Health Care (SBRA) was among the leaders today after reporting decent fourth-quarter results, forecasting Normalized AFFO to decline by "just" 6% in 2020 after dipping roughly 14% in 2019. Small-cap industrial REIT Plymouth (PLYM) outperformed today after it got approval from the New York Stock Exchange to transfer its common stock listing from the NYSE American to the NYSE. Reporting results after the close today include small-cap apartment REIT Preferred Apartment Communities (APTS) and hotel REIT Hersha Hospitality (HT). Hotel and Gaming REITs were among the biggest losers on the day, particularly those with greater exposure to international tourism.

It'll be a busy day tomorrow with more than a dozen REITs reporting including Public Storage (PSA), American Tower (AMT), and Spirit Realty (SRC). Our Real Estate Earnings Preview compiled the notable earnings that we're watching across the residential and commercial real estate sectors. We'll have additional coverage on iREIT on Alpha as well as our Real Estate Weekly Outlook.

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