Real Estate Stocks Hold Gains; Industry Copes with Virus
Real estate stocks ended the week in positive territory while the broader market gave up gains after President-elect Joe Biden issued a $ 1.9 trillion stimulus proposal.
Stocks tend to rise as Washington makes money in the economy, but negative reactions from some members of Congress – or fears that the move could succeed and trigger inflation – may have resulted in sales. In real estate, however, the damage was dampened.
“Employment and economic activity are pillars of real estate,” said John Kim, real estate investment analyst at BMO, “although concerns about the inflationary impact of government spending tend to be headwinds for the industry.”
The real estate market index rose nearly 2 percent this week. The XLRE index measures the performance of real estate management and development companies as well as REITs.
Simon Property Group rose 7.5 percent this week to close at $ 93. Boston Properties rose 5.6 percent to $ 95. Hilton Worldwide closed just below its pre-Covid high after its shares fell 3 percent. The retail, hotel and office sectors have been hit by the pandemic.
The Federal Reserve signaled this week that it will keep interest rates low and resume monthly asset purchases to prevent capital markets from stalling.
While the economy continues to be hit by the pandemic, large real estate companies weathered the second wave of the virus better than the first.
“The first wave of Covid resulted in real estate transactions being completely suspended,” said JD Parker, executive vice president at real estate services company Marcus & Millichap. “Now the employees in the virtual world are up to date and have successfully revised most of them.” your workflow. “
The S&P 500 Index and Nasdaq Composite closed 1.3 percent for the week. The Dow Jones Industrial Average was flat.
Here is a snapshot of how different real estate sectors are developing:
Hotels, retail stores and offices lost significant business to the pandemic as people restricted travel, shop online and work from home.
Large hotel stocks have outperformed hotels themselves as investors expect the pent-up demand for travel to wear off after vaccinations. Hilton Worldwide shares are up 36 percent since the summer, closing slightly below their pre-Covid high on Friday.
Meanwhile, according to STR, nationwide hotel occupancy has fallen to 37 percent, the lowest level since June. Closed hotels are not included in this number.
Marriott International gave way this week, closing near $ 126, about 17 percent below its pre-Covid high. The company was one of many companies that has stopped campaigning donations to politicians who voted against confirming the presidential election.
The biggest daily price gain for many large real estate companies since the pandemic broke out came in November, when the vaccine trial results were first published.
Investors are less optimistic about stationary property as consumers have become more accustomed to shopping from home during the pandemic. Macy’s and Bed Bath and Beyond, anchor tenants in many malls, have announced plans to close hundreds of stores in the coming years. Investors have since hiked corporate share prices.
Shares in Simon Property Group, the country’s largest mall, rose this week after the company issued new debt to cover $ 550 million due this year. Low interest rates have encouraged companies to borrow rather than sell assets to help cope with the financial impact of Covid. (Real estate services companies like Marcus & Millichap earn fees on loan deals.) Simon shares remain 36 percent below 2020 high of $ 147; They peaked at $ 227 in 2016.
High profile bankruptcies, from Neiman Marcus and JC Penney to Sears, have plagued shopping mall owners for years.
Rent-in rates remain high among office landlords, but the newfound desire on the part of employees to work from home poses long-term challenges for the industry. Uncertainty has depressed the share price of office building owners like SL Green.
Despite the positive weekend, SL Green stock is nearly 35 percent below its February 2020 price. The New York office giant has responded by allocating more money to buybacks, believing its stocks are undervalued.
“A large part of the office contracts this year comes from [lease] Renewals, ”Kim said, adding that assets continue to outperform where markets have valued office owner stocks. In other words, the real estate market values offices more than stock investors.
Industry & storage
Thanks to the steady surge in e-commerce, accelerated by the pandemic that is keeping consumers away from brick and mortar stores, industrial property owners have benefited from the increased demand for last-mile delivery infrastructure. Large industrial REITs like Prologis are trading near their pre-pandemic highs.
Frank Cohen, CEO of Blackstone REIT, said in a statement last year: “Similar to logistics, self-storage is a resilient sector in economic cycles due to low rental income, minimal maintenance costs and stable cash flows.
Against the background of a continuing national housing shortage, the demand for new houses has driven the share price of building owners soaring. Lennar Corporation stock rose 4.4 percent this week to $ 76.60 and has been above its pre-pandemic share price since last summer. Toll Brothers closed at $ 44.62, up 1.3 percent this week nine months after falling to a low of $ 16 per share.
IPOs / tech companies
The share price of Opendoor Technologies, which buys and sells homes through its online listing service, is down 10 percent from its original offering price in late December, from $ 29 per share to $ 26. The decline is due to a slowdown in U.S. home sales – 6.69 million homes were sold in November, translating into a five-month profit streak – after a record year when buyers took advantage of low interest rates to move or buy larger homes.
Airbnb, which canceled all Washington, DC reservations during the week of the presidential inauguration, continued to attract investor interest this week. The share price closed above $ 169, an increase of over 16 percent since Monday. The hotel replacement more than doubled its opening price of $ 68 on its first day of trading on December 10, despite travel trends slowing during the pandemic.
Technology firm CoStar Group’s shares fell for the second straight week, falling more than 7 percent to around $ 853 this week after the Federal Trade Commission rejected its acquisition of RentPath, a rental property listing service. CoStar is fighting a $ 60 million termination fee. It recently bought the URL Houses.com.
Contact Orion Jones