Daily Recap

• U.S. equity markets finished lower Wednesday amid a continued stalemate on the ever-elusive stimulus package while investors monitor an escalation of lockdown measures in Europe and a busy slate of earnings.
• Hanging onto 0.3% gains on the week thus far, the S&P 500 finished lower by 0.6% today while the Nasdaq 100 finished lower by 0.8%. The Dow retreated 166 points.
• Pushing its weekly declines to 2.5%, the broad-based Equity REIT ETF (VNQ) finished lower by 1.3% with 17 of 18 property sectors in negative territory.
• Small-cap REIT Gladstone Land (LAND) modestly boosted its dividend. We've now tracked 31 equity REITs in our universe of 170 REITs to raise their dividend in 2020 compared to 65 equity REITs that have reduced or suspended their dividend.
• Housing's still hot: The Mortgage Bankers Association reported that mortgage applications to purchase a single-family home remained strong last week and are now higher by 24% from last year.

Real Estate Daily Recap

U.S. equity markets finished lower Wednesday amid a continued stalemate on the ever-elusive fiscal stimulus package while investors monitor an escalation of lockdown measures in Europe and a busy slate of corporate earnings. Hanging onto 0.3% gains on the week thus far, the S&P 500 ETF (SPY) finished lower by 0.6% today while the tech-heavy Nasdaq 100 (QQQ) finished lower by 0.8% and the Dow Jones Industrial Average (DIA) retreated by 166-points. Pushing its weekly declines to 2.5%, the broad-based Equity REIT ETF (VNQ) finished lower by 1.3% with 17 of 18 property sectors in negative territory. The Mortgage REIT ETF (REM), meanwhile, declined by 0.2% today, erasing its gains on the week. 

Fiscal stimulus talks again appear to be stuck in neutral based on comments by House Speaker Pelosi in a now-viral interview with CNN yesterday afternoon. 8 of the 11 GICS equity sectors finished in negative territory today with the Industrials (XLI), Energy (XLE), and Materials (XLB) sectors finishing in the green. The Communications (XLC) sector lagged amid an escalating controversy over the social media censorship of a New York Post article alleging potential corruption involving former Vice President Joe Biden. Meanwhile, earnings results from the big banks were mixed again today with Goldman Sachs (GS) gaining ground after its report while Bank of America (BAC) and Wells Fargo (WFC) each declined.

Homebuilders and the broader Hoya Capital Housing Index were mixed today despite strong housing data this morning. The Mortgage Bankers Association reported that mortgage applications to purchase a single-family home remained strong last week and are now higher by 24% from last year while refinancing applications are now higher by 44% from last year. The 30-Year Fixed Mortgage Rate with conforming loan balances stands at 3.00%, at record-low levels, and down nearly 75 basis points from last year. Record-low inventory levels combined with robust levels of homebuying activity have put substantial upward pressure on home values since the start of the pandemic. On Friday, we'll see Homebuilder Sentiment data for October, which jumped to record-highs last month driven by a surge in homebuyer traffic.

Commercial Equity REITsIt's expected to be a fairly quiet week of REIT-related news flow ahead of the start of real estate earnings season next week, but we did hear a number of business updates and dividend announcements over the last 24 hours. Yesterday afternoon, small-cap specialty REIT Gladstone Land (LAND) declared a $0.0449/share monthly dividend, a 0.2% increase from its prior dividend. We've now tracked 31 equity REITs in our universe of 170 REITs to raise their dividend in 2020 compared to 65 equity REITs that have reduced or suspended their dividend. 74 REITs have maintained payouts at prior levels.

Hotel REIT Xenia Hotels & Resorts (XHR) finished lower by nearly 3% after it provided a business update in which it noted that it has launched a $150m debt offering while also announcing that 37 of the Company's 38 hotels and resorts are now open and operating. Occupancy rates for XHR - which reported occupancy rates in the low-single-digits in Q2 - increased steadily throughout the third quarter, coming in at 30.0% in July, 35.6% in August, and 37.9% in September. As discussed in Hotel REITs: Winter's Coming, according to data from STR, hotel occupancy bottomed out at just 24.5% in April but has recovered to just shy of 50% by early October. Room rates, however, remain lower by about 30% from last year, amounting to a total revenue per available room (RevPAR) decline of about 55%.

This afternoon, we will publish Cell Tower REITs: 5G Is Here on the iREIT on Alpha Marketplace. Throughout the coronavirus pandemic, the high-flying cell tower sector has thrived. Cellular network usage has surged as businesses, schools, and individuals stay connected via virtual interaction. Apple's upcoming iPhone 12 launch represents the true "arrival" of 5G, the much-anticipated next-generation mobile network that promises to usher in a new era of technological innovation. Cell tower REITs continue to benefit from favorable competitive positioning within the telecommunication sector. While these REITs are priced for perfection, low supply and high demand should translate into continued pricing power for cell tower REITs.

Meanwhile, small-cap apartment REIT Investors Real Estate (IRET) finished higher by 1.1% after it announced this morning that it collected 98.8% of rent in September and 98.8% for 3Q. Diversified REIT Preferred Apartments (APTS) finished lower by 5.0% after it reported yesterday afternoon that it collected 98% of apartment rents, 99% of office rents, and 95% of retail rents in Q3. Last week, we reported that the NMHC's Rent Payment Tracker found 79.4% of apartment households paid their rent by October 6, which was back in line with the pre-pandemic rate last October. While another round of fiscal stimulus will certainly be welcomed by landlords, we continue to point out that the existing fiscal stimulus measures are already the most significant since WWII as personal incomes have actually increased by 4.7% from last year.

Yesterday, we published Healthcare REITs: Signs of Life. Healthcare REITs - which have been "ground-zero" of the coronavirus pandemic - have shown signs of life over the past quarter on stabilizing fundamentals and on hopes of the success of a potential vaccine. Concerns about the severity of any given influenza season are an annual issue for healthcare real estate investors - particularly senior housing and skilled nursing operators - who, unfortunately, see thousands of resident deaths per year from the flu and other infectious diseases. A typical flu season in the United States will result in between 20,000 and 60,000 deaths every year with 95% of deaths above the age of 65. Using current estimates from the CDC and IHME, the mortality associated with infectious diseases this year will be 4x-6x worse than the typical flu season from both the direct result of COVID-19 and the indirect negative health consequences of containment measures.

Most REITs have now announced the date of their earnings release, which we've compiled below. Earnings season kicks off with Prologis (PLD), Redford (REXR), Agree Realty (ADC), and Equity Lifestyle (ELS) next Tuesday. (Note that REITs that have not yet reported an earnings release date are in italics with an estimated date based on past reports.)

Mortgage REITsAs tracked in our Mortgage REIT Tracker, residential mREITs finished lower by 0.3% today and are now off by 0.5% on the week. Commercial mREITs dipped 0.6% and are now lower by 1.2% this week. Dynex Capital (DX) was among the leaders today after it declared a $0.13/share monthly dividend yesterday afternoon, in line with its previous (reduced) rate. This afternoon, Broadmark Realty (BRMK) declared a $0.06/share monthly dividend, also in line with its previous (reduced) rate. 

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. Mortgage REIT earnings season is slated to begin in two weeks with investors anxious to hear updated dividend plans and book value estimates.

REIT Preferreds & BondsAs tracked in our all-new REIT Preferred Stock & Bond Tracker, REIT Preferred stocks finished lower by 0.63% today, on average, but outperformed their respective common stock issues by an average of 0.42%. After leading yesterday's gains, the preferred issues of troubled mall REITs CBL & Associates (CBL) and Washington Prime (WPG) were among the laggards today. Among REITs that offer preferred shares, the performance of these securities has been an average of 20.71% 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.

This Week's Economic CalendarAfter a quiet week of data, this week's busy slate of data includes inflation, housing, and retail sales data. The Consumer Price Index for September is released on Tuesday and the Producer Price Index comes out on Wednesday. Inflation showed signs of life in the prior two months after most inflation metrics hit multi-decade lows in May and June. On Friday, we'll see Retail Sales data for September and Homebuilder Sentiment data for October, both of which are coming off record-high levels. As it relates to an emerging V-shaped recovery, perhaps a "close second" to the housing industry in the velocity and magnitude of its rebound has been the retail industry, which has regained all of the lost ground during the pandemic.

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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.