Real estate stocks slump amid rising bond yields, sector rotation into technology

Wall Street's major market averages advanced during the week ended September 25 while Treasury yields surged, oil and gas markets remained in focus, and President Xi Jinping and President Trump wrapped up their summit.

However, rising bond yields and a sector rotation into technology stocks led to a decline in real estate stocks in general.

Mortgage rates jumped this week, crossing the 7% threshold on average by Thursday. 30-year fixed-rate mortgages hit 7.49% on Friday amid the bond selloff, the highest in two and a half years, CNBC News reported.

KB Home KBH stock saw a reversal in gains despite posting a Q3 earnings beat. The stock price decline was driven by a lowering of margin guidance at the homebuilder's earnings conference call on the back of a rough housing market.

On the difficult backdrop, the S&P 500 Real Estate Index Sector (SP500-60) decreased 1.36% week-over-week to 266.46 points, while the accompanying State Street Real Estate Select Sector SPDR ETF XLRE was down 2.28% to $41.56.

The Dow Jones REIT Indx Equity REIT Total Return Index declined 1.15%, while the FTSE Nareit All Equity REITs index retreated 1.18%.

Weekly Winners & Losers

Among largecap stocks, telecom tower REITs Crown Castle CCI (-7.14% W/W to $67.84) and SBA Communications SBAC (-6.97% W/W to $166.15) led the losers.

Telecom tower REITs were recently slapped with bearish outlooks by investment banks on broader sector underperformance.

Meanwhile, Host Hotels & Resorts HST led the gainers, adding 2.66% from the prior week to $22.42.

Welltower WELL followed with a 1.09% gain to $231.37. The week saw J.P. Morgan raise its recommendation on the stock to Overweight from Neutral, citing WELL trades at one of the lowest implied cap rates.

For midcap gainers, Howard Hughes HHH (+13.63% W/W to $68.43) led the pack.

Next week, Howard Hughes is set to host its annual shareholders meeting, which will include discussions on plans to accelerate transformation into a diversified holding company, including efforts to significantly reduce the capital intensity of Howard Hughes Communities, the company's real estate subsidiary, and increase capital available for investment in Vantage, the company's insurance subsidiary.

Medical Properties Trust MPT extended gains from the prior week, when it sold Idaho Falls Community Hospital and Mountain View Hospital for $413M. The stock closed 5.00% higher at $3.57.

Fermi FRMI topped the losers in a week that saw the REIT and TensorWave amend their data center lease and services agreement to extend the closing date under the lease by a month.

Additionally, Fermi signed a management agreement with CBRE Group CBRE to run and maintain building one, its first data center in the Texas Panhandle.

The stock fell 9.24% from the previous week to $4.52.

Compass COMP followed with a 6.94% decline to $9.38.

Among smallcap stocks, Adamas Trust ADAM (-8.64% W/W to $8.14), TPG RE Finance Trust TRTX (-8.64% W/W to $6.56), Transcontinental Realty Investors TCI (+6.35% W/W to $42.88), and Empire State Realty Trust ESRT (+4.58% W/W to $4.11) were the notable movers.

Here is a look at subsector performances for the week: