Tech Wreck • Yields Jump • REIT Earnings
U.S. equity markets finished sharply lower Thursday as Treasury yields jumped to mid-pandemic highs while investors rotated out of many of the high-flying COVID-winners into more economically-sensitive sectors.
Reversing yesterday's strong gains, the S&P 500 finished lower by 2.5% today while the Dow Jones Industrial Average declined 560-points while the tech-heavy Nasdaq 100 dipped 3.5%.
Real estate equities held-up rather well despite the yield-driven sell-off as the broad-based Equity REIT ETFs finished lower by 1.9% with 3-of-19 property sectors in positive territory.
The "reopening rotation" resulted in some rather violent moves today in the bond markets as the 10-Year Treasury Yield briefly climbed above 1.60% before ultimately closing at 1.52%.
REIT earnings results continue to come in better-than-expected. Yesterday afternoon, single-family rental REIT Invitation Homes (INVH) boosted its dividend by 13%, becoming the 30th equity REIT to raise its dividend this year and seventh this week.
Real Estate Daily Recap
U.S. equity markets finished sharply lower Thursday as Treasury yields jumped to mid-pandemic highs while investors rotated out of many of the high-flying COVID-winners into more economically-sensitive sectors. Reversing yesterday's strong gains, the S&P 500 ETF (SPY) finished lower by 2.5% today while the Dow Jones Industrial Average (DIA) declined 560-points while the tech-heavy Nasdaq 100 (QQQ) dipped 3.5%. Real estate equities held-up rather well despite the yield-driven sell-off as the broad-based Equity REIT ETFs (VNQ) finished lower by 1.9% with 3-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) pulled back by 3.5%.
The "reopening rotation" resulted in some rather violent moves today in the bond markets as the 10-Year Treasury Yield (IEF) briefly climbed above 1.60% before ultimately closing at 1.52%, which was still 13 basis points above yesterday's close. All eleven GICS equity sectors finished lower on the day, dragged to the downside by the Consumer Discretionary (XLY), Technology (XLK), and Materials (XLB) sectors. Meanwhile, a sharp pull-back from homebuilders dragged on the broader Hoya Capital Housing Index despite a solid day from some of the less yield-sensitive segments of the housing market including manufactured housing and single-family rentals.
Real Estate Earnings Update
We're now on the home stretch of another newsworthy REIT earnings season with another frenetic slate of results this afternoon. REITs have generally reported better-than-expected results across the major property sectors and we've seen a wave of dividend boosts in the first two months of this year. Yesterday afternoon, single-family rental REIT Invitation Homes (INVH) boosted its dividend by 13%, becoming the 30th equity REIT to raise its dividend this year and seventh this week.
Cell Towers: American Tower (AMT) finished fractional higher today after rounding out cell tower REIT earnings season this morning with a strong report in which it reported full-year AFFO/share growth of 7.5% in 2020, above prior guidance, and sees AFFO growth accelerating to 8.4% in 2021. AMT joined fellow cell tower REITs Crown Castle (CCI) and SBA Communications (SBAC) in reporting "beats" across the board with property revenues, adjusted EBITDA, and AFFO each topping estimates. Cell Tower REITs continue to benefit from highly favorable competitive positioning within the telecommunication sector and, despite the recent tech-driven sell-off, little has changed over the past quarter to alter that outlook.
Net Lease: EPR Properties (EPR) plunged 7.5% today after reporting yesterday afternoon that it collected just 46% of Q4 rents as the firm continues to struggle to collect rent from their movie theater tenants but did note that its collection rate improved to 66% in January. EPR saw its AFFO/share plunge 65% for full-year 2020, the worst in the REIT sector. Broadstone (BNL) finished lower by about 2% after reporting yesterday afternoon that it collected 99% of Q4 rents but provided a downbeat outlook for 2021 as the firm sees AFFO/share growth of -7.8% after seeing a 2.8% decline for full-year 2020. American Finance (AFIN) finished lower by about 1.5% after reporting yesterday afternoon that it collected 96% of Q4 rents but recorded a full-year decline in AFFO/share of -9.1%. Store Capital (STOR) reports results this afternoon.
Self-Storage: Public Storage (PSA) finished higher by 0.3% after reporting solid results yesterday afternoon, continuing the trend of better-than-expected results from storage REITs as the sector appears to have "turned the corner" in 2020, helped by the red-hot housing market. PSA reported that same-store NOI rose 1.3% while its occupancy rate climbed to 94.2%, which was 250 basis points higher from 4Q19. Storage demand is driven by "change" and there will be no shortage of that as mobility rates normalize post-pandemic. Recent earnings reports and interim updates showed momentum building into 2021. CubeSmart (CUBE) rounds out earnings season this afternoon.
Cannabis: Innovative Industrial Properties (IIPR) dipped more than 15% today after the best-performing REIT of last year reported results that were shy of analysts' estimates even as the firm reported AFFO per share growth of 53% for full-year 2020. Marijuana has continued along the seemingly unceasing path towards legalization. After the 2020 election, medical usage is now legal in 35 states while recreational usage is legal in 15 states. The ongoing federal prohibition - and the resulting limit on access to traditional banking - has forced cultivators and retailers to turn to alternative sources for capital, including cannabis REITs. Some form of Federal legalization appears likely at some point during the Biden Administration and it's unclear whether the positive demand-effects of legalization will outweigh the negative supply-effects for cannabis REITs.
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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.