Real estate stocks gain as traders look for alternatives to tech stocks

Real estate stocks gained this week as the markets priced in a near certainty of a Federal Reserve rate cut in September, and traders started moving out of technology stocks and into other assets such as defensive and value sectors and small-cap stocks.

Separately, the odds of former President Donald Trump winning the U.S. presidential elections in November have increased following the assassination attempt. A GOP sweep is widely seen as good news for the markets.

The Real Estate Select Sector SPDR Fund ETF (NYSEARCA:XLRE) ended 1.30% higher from last week at 40.51, gaining in three out of the five trading sessions. XLRE is currently trading 8% above its 200-day simple moving average.

Dow Jones Equity All REIT Total Return Index rose by 1.58%, while FTSE Nareit All Equity REITs increased 1.23%.

Meanwhile, the S&P 500 lost ~2% as a soft inflation report on Thursday, July 11, sparked a continued rotation out of the technology stocks. Data center REITs Equinix (EQIX) and Digital Realty Trust (DLR) were the worst-performing S&P 500 real estate stocks of the week amid the rotation.

Earnings

The real estate sector kicked off the quarterly earnings season on a positive note.

Prologis (PLD) bumped up the lower end of its 2024 core FFO guidance, as improving, though subdued, customer demand helped the industrial REIT to post slightly better-than-forecast Q2 earnings.

Crown Castle (CCI) posted on Wednesday Q2 funds from operations that topped the average analyst estimate, though it continued to retreat both sequentially and from a year earlier. The telecom infrastructure REIT’s 2024 outlook remained unchanged from the previous guidance issued on June 11, 2024.

Rexford Industrial Realty (REXR) slightly raised the low end of its 2024 guidance for core funds from operations, while maintaining the high end of the range. That comes after the industrial REIT’s Q2 results came in stronger than Wall Street had expected.

First Industrial Realty Trust (FR) posted a Q2 beat, SL Green Realty (SLG) boosted its 2024 guidance for funds from operations after results and Alpine Income Property Trust (PINE) posted earnings that beat Wall Street expectations.

Earnings are expected to be the focus next week.

For next week, the major real estate companies expected to report quarterly earnings are Alexandria Real Estate Equities (ARE), Equity LifeStyle Properties (ELS), AGNC Investment (AGNC), ARMOUR Residential REIT (ARR), CoStar Group (CSGP), Agree Realty (ADC), Highwoods Properties (HIW), Brandywine Realty Trust (BDN), Invitation Homes (INVH), Annaly Capital Management (NLY), Essential Properties Realty Trust (EPRT), Empire State Realty Trust (ESRT), Getty Realty (GTY), Pebblebrook Hotel Trust (PEB), Digital Realty Trust (DLR), CBRE Group (CBRE), Weyerhaeuser (WY), Healthpeak Properties (DOC), Gaming and Leisure Properties (GLPI), CTO Realty Growth (CTO) and Howard Hughes Holdings (HHH).

Performance

XLRE saw net inflows worth $52.59M last week, compared to outflows worth $0.14M a week ago, data from the information solutions provider VettaFi showed.

Seeking Alpha’s Quant Rating system changed its recommendation on the ETF to Hold from Sell this week, with a health score of 3.02 on a scale of 5. The system assigns XLRE B- for Momentum, A for Expenses, C- for Dividends, D+ for Risk and A+ for Liquidity.

SA analysts also grade the fund as Hold.

Equity Residential (EQR), Essex Property Trust (ESS) and Camden Property Trust (CPT) drove Residential to log the largest weekly gain among the XLRE subsectors.

Meanwhile, the downgrade of Host Hotels & Resorts (HST) at J.P. Morgan over high prices led the Hotel subsector to post the largest weekly decline.

Here is a look at the subsector performance: