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  • Alex Pettee, CFA
  • We're now at the halfway point of another newsworthy real estate earnings season. Results have so far been as impressive as any REIT earnings season in recent memory.

  • Roughly 95% of REITs have topped consensus earnings estimates, and of the 44 REITs that provide full-year funds from operations guidance, more than 80% have raised their full-year estimates.

  • Residential REIT results have been the most impressive with all housing-related REITs reporting significant upward guidance revisions as rental rates continue to soar across the nation.

  • Recovering valuations and ample access to capital have reignited the M&A "animal spirits" in the REIT world. We've seen five additional major REIT M&A deals since the start of June.

  • Industrial and shopping center REIT results have also been impressive. Technology REITs have reported solid but unspectacular results. Office REITs, however, continue to be an area of concern.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

Summary

  • U.S. equity markets were broadly higher Thursday amid the busiest 48-hour stretch of corporate earnings reports after a downbeat slate of economic data eased concerns about persistent inflationary pressure.

  • Bouncing back from two days of declines, the S&P 500 finished higher by 0.4% today while the Mid-Cap 400 rallied 1.0% and the Small-Cap 600 each jumped 1.2%.

  • Led by housing-related and reopening sensitive sectors real estate equities were mostly higher today as the Equity REIT Index finished fractionally higher with 14-of-19 property sectors in positive territory.

  • Residential REITs continue to report blowout reports as rents are soaring across essentially every market throughout the country. Sunbelt-focused residential REITs are seeing 10-15% higher rents on new leases.

  • Homebuilders soared today as well following an upbeat slate of results from Meritage and MDC Holdings. Builders reported they continue to sell homes as fast - or faster - than they can be built.

Real Estate Daily Recap

U.S. equity markets were broadly higher Thursday amid the busiest 48-hour stretch of corporate earnings reports after a downbeat slate of economic data eased concerns about persistent inflationary pressure. Bouncing back from two days of declines, the S&P 500 finished higher by 0.4% today while the Mid-Cap 400 rallied 1.0% and the Small-Cap 600 each jumped 1.2%. Led by housing-related and reopening sensitive sectors real estate equities were mostly higher today as the Equity REIT Index finished fractionally higher with 14-of-19 property sectors in positive territory while Mortgage REITs gained 1.4%.

The historically strong quarter for corporate earnings season - with 91% of S&P 500 components beating EPS estimates - has contrasted with a stretch of weaker-than-expected economic reports including GDP and jobless claims data this morning. Regardless, it was a "risk-on" day today with nine of the eleven GICS equity sectors finishing higher, led to the upside by Materials (XLB) and Consumer Discretionary (XLY) stocks. Homebuilders and the broader Hoya Capital Housing Index delivered a strong rally following a stellar slate of earnings reports from across the housing ecosystem over the last 24 hours.

Real Estate Earnings Updates

Apartment: Sunbelt-focused Mid-America (MAA) jumped after reporting strong results, boosting its full-year NOI guidance by 280 bps to 3.8% and its FFO guidance by 440 bps to 5.6%. MAA achieved blended rent growth of 8.2% in Q2 and "above 12%" so far in July. Coastal-focused AvalonBay (AVB) rallied after introducing full-year NOI and FFO guidance above the street range, and noting a similarly rapid acceleration in rent growth. UDR (UDR) gained after boosting its NOI and FFO guidance as well for the third time this year. Camden Property (CPT) reports results this afternoon.

Single-Family Rental: Invitation Homes (INVH) rallied after reporting another stellar quarter and raising its full-year guidance across the board - just a few weeks after raising guidance during its REITweek presentation. INVH noted that occupancy rates climbed to record-highs at 98.3% and achieved 13.8% rent growth on new leases and renewal rent growth of 8.0%, the strongest quarter on record for each of these metrics. INVH boosted its full-year FFO growth outlook by 180 bps and now sees AFFO growth of 14.8% this year while also boosting its NOI outlook by 200 bps to 7.0%. American Homes (AMH) reports results next week.

Homebuilders: It was a busy 24 hours of homebuilder earnings as well. Meritage (MTH) soared more than 10% after reporting record-high margins and significantly raised its full-year revenue and EPS guidance, commenting that "Housing demand remains strong and we are still able to sell our homes soon after they are released." MDC Holdings (MDC) gained more than 3% after reporting a 54% jump in revenues and 14% increase in net orders. Century Communities (CCS) gained about 10% after reporting a similar 17% increase in order growth and a significant jump in margins to company-records. Taylor Morrison (TMHC) rallied more than 5% after reporting better-than-expected results despite continued capacity constraints. Beazer (BZH) reports after the bell today.

Data Center: "Beat and raise" hasn't been enough for technology REITs so far in Q2. Equinix (EQIX) dipped more than 5% despite raising its full-year FFO guidance by 50 bps to 9.6%. CoreSite (COR) declined despite raising its full-year FFO outlook by 170 bps to 4.7%. CyrusOne (CONE) slipped 3% despite a 130 bps hike to its FFO outlook to 2.6%. Leasing results from COR and CONE - the most closely watched earnings metric - were roughly in-line with estimates. Digital Realty (DLR) reports results this afternoon while QTS Realty (QTS) rounds out results next week.

Cell Tower: American Tower (AMT) - the largest REIT by market capitalization - was roughly flat today despite reporting another very strong quarter. AMT significantly boosted its full-year revenue growth guidance by 640 bps to 13.9% and its AFFO guidance by 260 bps to 11.6%. AMT's international business - which had been a drag over the past half-decade - appears poised to become a contributor to growth in the quarters ahead. AMT raised its organic tenanat billings "as a result of higher growth expectations internationally." These results were an interesting contrast with results from domestic-focused Crown Castle (CCI), which noted similarly solid overall trends but was pressured at the margins by a slow pace of small-cell deployment in the U.S.

Shopping Center: Shopping centers results have been impressive thus far as well with the five REITs to report thus far seeing a 17% increase in same-store NOI growth, a complete normalization in rent collection, and an impressive increase in their full-year FFO outlook. Kimco (KIM) rallied after raising its full-year FFO growth outlook to 12%, noting that its "operating fundamentals are returning to pre-pandemic levels at a faster pace than originally projected." Acadia (AKR) and Retail Opportunity (ROIC) each gained after reporting similary-strong NOI growth in Q2 and raising their full-year outlook. We'll hear results from Weingarten (WRI) after the close today.

As discussed in our Real Estate Earnings Preview, REIT earnings season kicks into high gear this week, and over the next month, we'll hear results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. Results have so far been as impressive as any REIT earnings season in recent memory with the vast majority of REITs significantly raising their full-year guidance. We'll publish our REIT Earnings Halftime Report later this evening on The REIT Forum.

Economic Data This Week

The jam-packed slate of housing data and earnings reports this week continues on Friday when we'll see inflation data with the PCE Price Index - the Fed's "preferred" gauge of inflation - which is expected to show that prices are rising at the fastest level in at least a decade as well as Personal Income & Spending data. We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

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Join our Mailing List on our Website

The REIT Forum is now the exclusive home to Hoya Capital premium research. Visit our website and join our email list for quick access to our real estate research library: HoyaCapital.com where we have links all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

  • Alex Pettee, CFA

Summary

  • U.S. equity markets were mixed Wednesday after the Federal Reserve maintained the status-quo while a busy slate of earnings results continued to beat consensus estimates at a historically strong rate.

  • Following declines of 0.5% yesterday, the S&P 500 finished fractionally lower today while the Mid-Cap 400 and the Small-Cap 600 each rallied 0.8%.

  • Real estate equities were mixed despite a very strong slate of earnings results over the past 24 hours as the Equity REIT Index declined 0.6% with 8-of-19 property sectors in positive territory.

  • Self-storage REIT ExtraSpace rallied after reporting another stellar quarter as the incredible turnaround continued for the previously middling storage sector. EXR boosted its FFO guidance by 830 bps and now sees 23.7% growth this year.

  • Homebuilder M/I Homes surged after reporting strong results with EPS nearly doubling from last year, noting that its backlog swelled to nearly 5.5k units, up 50% from last year after another record-setting quarter of order growth.

Real Estate Daily Recap

U.S. equity markets were mixed Wednesday after the Federal Reserve maintained the status-quo while a busy slate of earnings results continued to beat consensus estimates at a historically strong rate. Following declines of 0.5% yesterday, the S&P 500 finished fractionally lower today while the Mid-Cap 400 and the Small-Cap 600 each rallied 0.8%. Real estate equities were mixed despite a very strong slate of earnings results over the past 24 hours as the Equity REIT Index declined 0.6% with 8-of-19 property sectors in positive territory while Mortgage REITs gained 0.5%.

Fed Chair Powell commented that there's "a ways to go" after Fed officials maintained their current policy objectives but signaled that they're moving gradually closer to tapering while shrugging-off near-term inflationary concerns. Five of the eleven GICS equity sectors finished higher today, led to the upside by the Communications (XLC) sector following earnings results from Alphabet (GOOG) and Apple (AAPL). Homebuilders and the broader Hoya Capital Housing Index were mixed ahead of a jam-packed slate of results from rental REITs and homebuilders over the next 24 hours.

Real Estate Earnings Updates

Student Housing: Today, we published our updated sector overview of the student housing sector and its lone REIT constituent, American Campus (ACC). The recent reacceleration in worldwide COVID cases - and resulting "public health" mandates - threaten to delay the complete return of in-person learning. ACC's focus on highly-selective flagship universities across Sunbelt markets - most of which offered in-person classes throughout the pandemic - has proven to be especially critical. ACC reported encouraging Q2 results this week as pre-leasing accelerated significantly to 91.7% for the upcoming year.

Apartment: Equity Residential (EQR) made it three-for-three "beat and boost" reports from the multifamily sector. EQR significantly raised its full-year FFO and NOI outlook as rent growth turned firmly positive on a year-over-year basis by July. EQR boosted its NOI outlook by 400 bps and its FFO outlook by 560 bps from its prior guidance provided during REITweek. EQR commented, "our operations continue to recover rapidly with robust demand for our apartments in all our markets leading to high occupancy, increased pricing power and an almost complete absence of new lease concessions.” AvalonBay (AVB), UDR (UDR), and Mid-America (MAA) report results this afternoon.

Self-Storage: ExtraSpace (EXR) gained about 1% after reporting another stellar quarter as the incredible turnaround for the previously middling storage sector continued in Q2. EXR boosted its FFO guidance by 830 bps and now sees 23.7% growth this year and raised its full-year same-store NOI outlook by 750 bps to 14.5%. EXR commented, "we had an exceptionally strong second quarter, with record setting occupancy and very strong rental rates... Our excellent property performance, coupled with accretive investments, led to FFO growth of 33.3%." Self-Storage REITs have delivered as impressive of a turnaround as any property sector in recent memory, catalyzed by the ongoing housing boom and the acceleration in housing market turnover.

Homebuilders: M/I Homes (MHO) surged after reporting strong results with EPS nearly doubling from last year, noting that its backlog swelled to nearly 5.5k units, up 50% from last year after another record-setting quarter of order growth. MHO commented, " Demand for new homes continues to be very strong. Despite our community count being down throughout the quarter, and significantly limiting sales in the majority of our communities, we set a record for second quarter new contracts." We'll hear results this afternoon from Century Communities (NYSE:CCS) and Meritage (MTH) and results tomorrow morning from Taylor Morrison (TMHC) and MDC Holdings (MDC).

Net Lease: EPR Properties (EPR) dipped 2% after reporting mixed results yesterday afternoon. EPR introduced FFO guidance for 2021 at $2.81 at the midpoint, a nearly 50% jump from last year but still nearly 50% below its pre-pandemic FFO of $5.44 in 2019. EPR reported that it collected roughly 85% of rents in Q2 - up from around 65% in Q1 - and that 99% of the Company's theatre and 100% of the Company's non-theatre locations were open. Despite their heavy retail and restaurant exposure, net lease REITs - with the exception of EPR - fared far better than their retail REIT peers with rent collection "normalizing" by late 2020. Getty (GTY) reports this afternoon.

Industrial: Following a trio of strong results last week from Prologis (PLD), Rexford (REXR), and First Industrial (FR), yesterday afternoon EastGroup (EGP) reported strong results and raised its full-year same-store NOI growth by 80 bps to 5.2% and its FFO growth guidance by 170 bps to 9.3%. STAG Industrial (STAG) jumped after boosting its full-year FFO growth by 370 bps to 7.4% and its full-year NOI guidance by 150 bps to 3.5%. We'll hear results from Duke Realty (DRE) and Industrial Logistics (ILPT) this afternoon.

As discussed in our Real Estate Earnings Preview, REIT earnings season kicks into high gear this week, and over the next month, we'll hear results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. In addition to the aforementioned earnings reports, we'll also hear results this afternoon from data center REITs Equinix (EQIX) and CyrusOne (CONE); single family rental REIT Invitation Homes (INVH); shopping center REITs Acadia (AKR), and Retail Opportunity (ROIC); office REITs Kilroy (KRC), Empire State (ESRT), Piedmont (PDM), and Mack-Cali (CLI); casino REIT VICI Properties (VICI) and hotel REITAshford (AHT).

Mortgage REITs

Mortgage REIT coverage and commentary throughout earnings season is now exclusively provided to The REIT Forum subscribers. We heard earnings results from Dynex Capital (DX), Blackstone Mortgage (BXMT), and Tremont Mortgage (NASDAQ:TRMT) over the past 24 hours and we'll hear results from Annaly Capital (NLY) and Capstead Mortgage (CMO) this afternoon. Last week, we published Mortgage REITs: High Yield Bargains. Mortgage REITs endured punishing declines during the pandemic, but have nearly tripled from their lows and are back within shouting distance of pre-pandemic highs.


REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.15% today, on average, and outperformed their respective common stock issues by an average of 0.45%. So far in 2021, REIT Preferred stocks are higher by 9.14% on a price return basis. The average REIT preferred pays a current yield of 5.97% and trades at a slight premium to par value.

Economic Data This Week

The jam-packed slate of housing data and earnings reports this week continues on Thursday when we'll get our first look at second-quarter GDP, which is expected to show an 8.2% annualized gain, and we'll also see Pending Home Sales data for June. On Friday, we'll see inflation data with the PCE Price Index - the Fed's "preferred" gauge of inflation - which is expected to show that prices are rising at the fastest level in at least a decade as well as Personal Income & Spending data.

To Continue Reading, Click Here To Visit Seeking Alpha!


Join our Mailing List on our Website

The REIT Forum is now the exclusive home to Hoya Capital premium research. Visit our website and join our email list for quick access to our real estate research library: HoyaCapital.com where we have links all of our real estate sector reports and daily recaps. You can also follow our real-time commentary on Twitter, LinkedIn, and Facebook.

Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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