<

Recommendation: Watch for key releases during this eventful week

Part 2
Recommendation: Watch for key releases during this eventful week (Part 2 of 6)

Why strong releases encourage REITs like Simon Property Group

Weak economic data and earnings dominate the week

Last week didn’t have a lot of meaningful economic data, although new home sales came in much weaker than expected and the surge we saw in May was revised away. Existing home sales did come in better than expected. Finally, the Chicago Fed National Activity index showed manufacturing decelerated a bit in June.

SPG FFOEnlarge Graph

On the earnings front, we heard from mall REIT heavyweight Simon Property Group, which announced good numbers and had its first conference call after the spinoff of its smaller malls into a new REIT. We also heard from the bigger diversified homebuilders PulteGroup (PHM) and D.R. Horton (DHI).

Commercial REITs will be encouraged by economic strength

Commercial real estate investment trusts (or REITs) in the retail space, like Simon Property Group (SPG) and General Growth Properties (GGP), focused on Simon Property’s earnings conference call.

Office REITs like Vornado Realty Trust (VNO) will be worried about the industrial data, which could signal a slowdown

Implications for mortgage REITs

Mortgage REITs, like Annaly (or NLY) and American Capital (or AGNC), are driven by interest rates. Rates have been in a tight trading range.

Last week didn’t have much in the way of market-moving data and bonds were more or less unchanged. REITs are certainly happy to see rates moving lower rather than higher.

Implications for homebuilders

Last week, we heard from PulteGroup (PHM) and D.R. Horton (DHI). The pattern of low (or negative) unit order growth combined with big increases in average selling prices is continuing.

It certainly appears the builders are happy to keep increasing prices and willing to live with lower unit growth. At some point, that game won’t work anymore. But for now, it appears the next quantum leap in housing—getting back to a semblance of normalcy—will be a 2015 event.

The Realist Discussions