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  • Alex Pettee, CFA

Yields Jump • Oil Dips • Office M&A

Summary

  • U.S. equity markets were broadly lower Thursday amid renewed pressure on large-cap technology stocks and other COVID-outperformers after long-term interest rates jumped to 14-month highs.

  • Erasing its week-to-date gains, the S&P 500 finished lower by 1.5% today while Dow Jones Industrial Average declined 153 points and the tech-heavy Nasdaq 100 slid nearly 3%.

  • Real estate equities were lower as well with the broad-based Equity REIT ETFs pulling back 1.0% today with 16-of-19 property sectors in negative territory.

  • That wave of growth continued over the last 24 hours with another dividend boost from office REIT Cousins Properties (CUZ), which was one of three office REITs to raise its dividend last year. CUZ becomes the 49th equity REIT to raise its dividend this year.

  • Columbia Property Trust (CXP) - a small-cap office REIT that owns buildings in NYC, DC, and SF - surged more than 10% after a report that the company received a takeout offer from an investor group for $19.50/share, a 25% premium to its closing price yesterday afternoon.

Real Estate Daily Recap

U.S. equity markets finished broadly lower Thursday amid renewed pressure on large-cap technology stocks and other COVID-outperformers after long-term interest rates jumped to 14-month highs. Erasing its week-to-date gains, the S&P 500 ETF (SPY) finished lower by 1.5% today while Dow Jones Industrial Average (DIA) declined 153 points and the tech-heavy Nasdaq 100 (QQQ) slid nearly 3%. Real estate equities were lower despite another dividend boost and some M&A news as the broad-based Equity REIT ETFs (VNQ) pulled back by 1.0% today with 16-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) declined by 2.4%.

Trading patterns today departed from recent familiar trends as the 10-Year Treasury Yield (IEF) jumped by 9 basis points even as commodities - particularly Crude Oil (USO) - were slammed as several major European countries have recently amplified lockdown measures amid a continued struggle with a vaccine rollout. Ten of the eleven GICS equity sectors finished in negative territory today, dragged to the downside by the Energy (XLE) and Technology (XLK) sectors. A relatively solid day from housing-related financials wasn't enough to offset a sharp pull-back from the single-family homebuilders as the Hoya Capital Housing Index pulled back 1.5% today but housing stocks remain an area of strength on the week.

Commercial Equity REITs

Today, we published Mall REITs: It Can Always Get Worse. Before the pandemic, we warned that several mall REITs were "one recession from extinction." Two REITs have since entered bankruptcy and a third is close behind. Pushed over the edge by the pandemic, mall REITs entered 2020 on already unstable footing following a tsunami of store closings over the past decade and relentless share price declines. The vaccine-driven rotation has lifted mall REITs to 40% gains so far this year and pushed share prices of several REITs back to pre-pandemic levels despite a far bleaker outlook. Despite improving rent collection and foot traffic, earnings reports revealed that Q4 was another epically-bad quarter. FFO per share plunged more than 50% in 2020 and occupancy-rates remain in free-fall.

Earlier this week, we published REITs: This Time Was Different. REITs recorded a sequential improvement across all critical metrics in Q4, powering a historic wave of dividend growth in early 2021. That wave of growth continued over the last 24 hours with another dividend boost yesterday afternoon from office REIT Cousins Properties (CUZ), which declared a $0.31/share quarterly dividend, a 3.3% increase from its prior dividend of $0.30. CUZ - which was one of three office REITs to raise its dividend last year - becomes the 49th equity REIT to raise its dividend this year.

Office: Columbia Property Trust (CXP) - a small-cap office REIT that owns buildings in NYC, DC, and SF - surged more than 10% after a report that the company received a takeout offer from an investor group for $19.50/share, a 25% premium to its closing price yesterday afternoon. The group - which includes Arkhouse Partners and Sapir Organization - currently owns about 3.3% of CXP. The "reopening rotation" has boosted many of the urban office REITs to double-digit percentage gains this year including Vornado (VNO), SL Green (SLG), Douglas Emmett (DEI), and Empire State Realty (ESRT) even after quarterly results showed punishing declines in FFO/share growth in 2020 and a muted outlook for 2021.

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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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