SELL OFFICE REIT BASKET-BXP, HIW, KRC, CUZ
MSS recommends selling a basket of 4 Office REITs for the post Pandemic Exodus. Multiple data points, surveys, and polling confirm that there will be a move out of urban areas. According to an April Harris Poll, “Nearly 40% of U.S. adults living in urban areas indicated they would consider moving “out of populated areas and toward rural areas.”” Large companies like IBM, Hewlett Packard, JPMorgan Chase & Co., Citigroup Inc., and Goldman Sachs Group Inc. are readying offices for at least a portion of their white-collar workforce to return over the coming months. In May, CNBC reported that "Twitter has said that employees have the option of never coming back to the office to work, while Facebook Inc., Google parent Alphabet Inc., Salesforce.com Inc., and Slack Technologies Inc. have said they don't expect workers back in the office until 2021 — if then." (sources below).
With less people in cities and less people in offices, Office REITs are facing a tough road.
The basket contains 4 Office REITs from the S&P Supercomposite 1500 Office REITs Sub Industry Index (BXP, HIW, KRC, CUZ). All the holdings of the index can be seen at the bottom of this report.
Explanation by the charts:
1. Chart 1 shows that the Office REIT Index violently broke below 12-month support in March. Not only did the index fall further than the overall market, it has not been able to regain ground as easily. The index fell 45% from its February high to its March low; far more than the 35% decline in the S&P500. Office REITs did rally 33% to an April high, but, unlike the market, they are now down 10% from their April highs. Office REITs have rallied from the May lows, but a short-term downtrend has formed, which should halt the rally here.
2. The weekly chart of Office REITs shows that the decline since February has gapped below the 2 long term uptrend lines.
3. Chart 3 shows that the recent break below the long-term uptrend and weak rally is reminiscent of the 2008 pattern which presaged a further 65% decline in Office REITs.
4. Charts 4 through 7 shows that BXP, HIW, KRC, CUZ all have similar negative patterns; having broken support and being proximate to newly formed short term downtrends.
MSS’s intermediate-term target is down 25%.
Sources: