NYC-Exposed Stocks Soar as Vaccine Promises an Eventual Recovery

(Bloomberg) -- Beaten-down stocks with the most direct exposure to New York City rallied on hopeful Covid-19 vaccine news and as President-elect Joe Biden moved ahead with plans for his incoming administration.

Office real estate investment trusts Vornado Realty Trust and SL Green Realty Corp. had record gains early Monday, both surging more than 35%, while Empire State Realty Trust Inc. rose as much as 27%. New York Community Bancorp and Signature Bank were among lenders with double-digit percent gains, while NYC apartment REIT Equity Residential jumped 31% and AvalonBay Communities Inc. climbed 25%.

Even with Monday’s gains, Empire State is still down more than 50% this year, Vornado has tumbled 43% and SL Green is lower by 39%. They all trail the S&P 500 Real Estate Index, which is down just 3.5%. New York Community, Signature Bank, Equity Residential and AvalonBay are also all down more than 20% since the year began.

“If there’s a vaccine that gets the city moving again, people will be willing to move back,” Bloomberg Intelligence analyst Jeffrey Langbaum said. City life will resume once workers return to their offices, and the city opens up again, he said, but the timing is still a question.

The rally came even as NYC Mayor Bill de Blasio said the city is “dangerously close” to a second wave of the virus and New Jersey Governor Phil Murphy said he’ll reimpose some restrictions because of a rising number of Covid-19 cases there. Murphy also said he’s “highly optimistic” that Biden will approve funding for a Hudson River rail tunnel that has languished in the Trump administration, and projected that construction could start in early 2021.

Evercore ISI analyst Steve Sakwa said REIT stocks were poised to react sharply to vaccine news. He flagged office REITs with New York City exposure as among those that were likely to gain.

Sakwa also saw lodging, senior housing and mall REITs as likely to benefit, while REITs focused on single-family rentals might lag and warehouse stocks may be sold to fund other stocks, which may rise on vaccine news.

Sakwa’s vaccine plays included:

• Park Hotels & Resorts Inc. and Pebblebrook Hotel Trust in lodging; Park surged as much as 43%, and Pebblebrook jumped as much as 49%.
• Welltower Inc. and Ventas Inc. in health care, as they’re leveraged to senior housing demand, which has been hurt by Covid; both rallied 32%.
• Malls, which may rally, though they still face “structural issues,” and strip centers.
• In residential REITs, campus housing REIT American Campus Communities Inc., which may gain as a vaccine would help enrollment next fall, along with Equity Residential; American Campus rose 18%.

But Sakwa warned that mobile home REITs Equity LifeStyle Properties Inc. and Sun Communities Inc. might lag; both pared gains of more than 5%. He was cautious about other stocks as well:

• In single-family rental, he said American Homes 4 Rent and Invitation Homes Inc. may “take a breather;” American Homes shed more than 4.7%, while Invitation Homes fell 3.6%.
• Data center/tower stocks Equinix Inc. and American Tower Corp. may be a “source of funds;” Equinix fell as much as 3.3%, though American Tower rose 4.5%.
• Warehouse stocks like Prologis Ltd. may be sold to buy vaccine plays; Prologis fell as much as 1.7%.

Read more: Earlier, BofA, JPMorgan Rally on Vaccine Optimism and Biden Boost

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