Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Tech Trouble • Vaccine Immunity • REIT Earnings Frenzy

Summary

  • U.S. equity markets were mostly lower Monday as rising bond yields pressured many of the mega-cap technology stocks as encouraging results from vaccine studies suggested a sooner-than-feared return to normalcy.

  • Ending lower for the fifth-straight day for the first time since last February, the S&P 500 finished lower by 0.8% today while the Dow Jones Industrial Average gained 27 points.

  • Real estate equities were broadly higher today ahead of another frenetic week of earnings reports as the broad-based Equity REIT ETFs finished higher by 0.8% with 13-of-19 property sectors in positive-territory.

  • The 10-Year Treasury Yield climbed to the highest level since last March after data from separate studies in the UK and Israel both showed that the Pfizer vaccine did indeed effectively eliminate the transmission of the coronavirus.

  • We're now on the home stretch of another newsworthy REIT earnings season. We'll hear results from a dozen REITs this afternoon and nearly 60 REITs in total throughout the week.

Real Estate Daily Recap

U.S. equity markets were mostly lower Monday as rising bond yields pressured many of the mega-cap technology stocks as encouraging results from vaccine studies suggested a sooner-than-feared return to normalcy. Ending lower for the fifth-straight day for the first time since last February, the S&P 500 ETF (SPY) finished lower by 0.8% today while the Dow Jones Industrial Average (DIA) was higher by 27 points while Small-Caps (SLY) gained 0.6%. Real estate equities were broadly higher today ahead of another frenetic week of earnings reports as the broad-based Equity REIT ETFs (VNQ) finished higher by 0.8% with 13-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 0.7%.

The economically-sensitive GICS equity sectors rallied today as the Energy (XLE) and Financials (XLF) led to the upside. The 10-Year Treasury Yield (IEF) climbed to the highest level since last March after data from separate studies in the UK and Israel both showed that the Pfizer (PFE) vaccine did indeed effectively eliminate the transmission of the coronavirus, suggesting that vaccinated individuals will soon be able to resume normal activities. Within the Hoya Capital Housing Index, a pullback from the homebuilders was offset by solid performance from residential REITs ahead of another busy week of housing data and earnings reports.

We have another jam-packed slate of economic and housing data in the week ahead. On Tuesday, we'll see the Case Shiller Home Price Index for December which is likely to show a continued reacceleration in home price appreciation. On Wednesday, we'll see New Home Sales data for January, which are expected to continue their strong post-pandemic rebound. On Thursday, we'll see Pending Home Sales as well as the first revision to fourth-quarter GDP. Then on Friday, we'll see Personal Spending & Income data and PCE inflation data for January in addition to a flurry of PMI and Consumer Sentiment data.


Real Estate Earnings Update

Today we published Data Center REITs: Cloud Keeps Growing. Data Center REITs were the best-performing REIT sector in 2020, riding the "work-from-home" tailwinds that powered a surge in cloud spending, but the post-vaccine sector rotation has pressured these high-flyers. Recent earnings reports were solid but not spectacular. Leasing activity - the most closely-watched earnings metric - surged to record highs in Q4, but "same-store" pricing remains flat amid stiff competition. Consistent with the other "essential" property sectors - housing, technology, and logistics - FFO growth was firmly positive in 2020, averaging roughly 4%. With muted pricing power amid stiff competition from the hyperscale giants – Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL) - these REITs will continue to rely heavily on development and M&A to fuel future growth.

We're now on the home stretch of another newsworthy REIT earnings season. Results thus far have generally been better than expected as dividend cuts have given way to dividend boosts. 23 equity REITs have now boosted their dividend this year, the majority of which were among the 52 REITs that increased their dividend last year. Rent collection - and interest collection for mREITs - has recovered to "normalized" levels across all major property sectors outside of retail. The final stretch of earnings season could bring more fireworks as many of the more-troubled REITs have yet to report results.

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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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