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  • Alex Pettee, CFA

Earnings Frenzy • Census Redraws Maps • Week Ahead

Summary

  • U.S. equity markets finished mostly higher Monday - flirting again with fresh record-highs - ahead of a frenetic week of corporate earnings reports, Fed commentary, and economic data.

  • Following declines of 0.1% last week, the S&P 500 gained 0.2% today while the Mid-Cap 400 climbed 0.5% and the Small-Cap 600 gained 0.4%.

  • REITs and homebuilders rallied today as real estate earnings season kicks into high gear this afternoon. The broad-based Equity REIT Index gained 0.3% today with 14-of-19 property in positive territory.

  • Highlights of this afternoon's REIT earnings calendar include manufactured housing REIT Sun Communities (SUI), office REIT Alexandria Realty (ARE), and timber REIT PotlatchDeltic (PCH).

  • Vote With Your Feet? The Census Bureau released its once-per-decade population data and updated Electoral College map. Texas gained the most new House seats while California and New York lost seats.

Real Estate Daily Recap

U.S. equity markets finished mostly higher Monday - flirting again with fresh record-highs - ahead of a frenetic week of corporate earnings reports, Fed commentary, and economic data. Following declines of 0.1% last week, the S&P 500 ETF (SPY) gained 0.2% today while the Mid-Cap 400 (MDY) climbed 0.5% and the Small-Cap 600 (SLY) gained 0.4%. REITs and homebuilders were among the leaders today as real estate earnings season kicks into high gear this afternoon. The broad-based Equity REIT ETFs (VNQ) gained 0.3% today with 14-of-19 property sectors in positive territory while Mortgage REITs (REM) finished lower by 0.4%.

As discussed in our Real Estate Weekly Outlook, corporate earnings season is off to a historically strong start, which has buffered the impact from last week's capital gains tax hike proposals. Seven of the eleven GICS equity sectors were higher on the day, led to the upside by the Energy (XLE), Materials (XLB), and Technology (XLK) sector ahead of closely-watched results this afternoon from Tesla (TSLA). Homebuilders and the broader Hoya Capital Housing Index rallied to fresh record-highs today ahead of another busy week of housing data and housing-related earnings reports including results tomorrow morning from PulteGroup (PHM).

On the economic data front, we'll see the Case Shiller Home Price Index tomorrow which is expected to show continued upward pressure on home values amid the intensifying housing shortage. On Wednesday, we'll get commentary from the Federal Reserve at the conclusion of their FOMC meeting. On Thursday, we'll see the first look at first-quarter GDP as well as Pending Home Sales for March. Finally, on Friday, we'll get some inflation data with the Core PCE Index - the Fed's "preferred" inflation metric - and get a look at Personal Income and Spending data for March.

Commercial Equity REITs

Last week, we published REIT Dividend Revival: Earnings Preview. Real estate earnings season kicks into high gear this week with results from nearly 60 equity REITs, 10 mortgage REITs, and a half-dozen homebuilders. Results from the handful of REITs that reported results last week were impressive - particularly in the housing, logistics, and real estate technology sectors.

Self-Storage: Later this afternoon, we'll publish a new report on The REIT Forum which will examine the recently high-flying self-storage REIT sector. A topic that is particularly timely given the newly-released Census population data and Electoral College map, the "urban exodus" has been a boon for self-storage REITs, which had entered the pandemic as perennial underperformers with challenged fundamentals and a strained outlook amid oversupply headwinds. Catalyzed by the suburban housing boom and the desire for more space, self-storage demand has rebounded sharply since mid-2020, and so too has the performance and outlook for storage REITs.

Timber: This afternoon, we'll hear results from PotlatchDeltic (PCH). Reignited by the red-hot U.S. housing market, timber REITs "caught fire" in late 2020 - both literally and figuratively - as lumber prices (LB1:COM) have soared to record-highs as insatiable demand from homebuilders has clashed with reduced supply levels as timber producers scramble to catch-up. Initially caught flat-footed by the velocity of the rebound in lumber demand from home building and remodeling activity, fourth-quarter earnings results showed that timber REITs are now firing on all cylinders. Lumber production - and soaring prices - have become a bottleneck in the housing industry value chain, but the full potential of the vertically integrated REITs - Weyerhaeuser (WY) and - PotlatchDeltic has been unleashed in early 2021.

Manufactured Housing: Sun Communities (SUI) will report results this afternoon. Riding the tailwinds of affordable housing shortage across the United States, manufactured housing REITs outperformed the REIT index for a remarkable eighth-straight year in 2020. Equity LifeStyle (ELS) kicked off the earnings season on Monday with another stellar beat-and-raise quarter. The company now sees full-year NOI growth of 5.3% - up from 3.8% last quarter. Additionally, ELS boosted its full-year guidance for FFO growth to 9.7% - up from 6.5% last quarter. The headwinds from early 2020 - the shutdown of RV parks and the slowdown in home sales - have become tailwinds amid a broader revival across the housing industry.

Also reporting this afternoon are lab space-focused office REIT Alexandria Realty (ARE), shopping center REIT Weingarten (WRI), cell tower REIT SBA Communications (SBAC), and industrial REIT Industrial Logistics Properties Trust (ILPT). We'll have full coverage and instant analysis throughout the afternoon and evening on The REIT Forum.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished flat today following gains last week of 0.6%. Commercial mREITs finished higher by 0.1% today after gaining 0.7% last week. Mortgage REIT Lument Finance (LFT) today announced the launch of a public offering of shares of its Series A Cumulative Redeemable Preferred Stock with a $25 par value. Before the name change from Hunt Companies in late 2020, the company previously had one preferred issue - an 8.75% Series A Cumulative Redeemable Preferred (HCFT.PA) that it redeemed in 2019.

Mortgage REIT earnings season hits high gear this afternoon with results from KKR Real Estate (KREF), and AGNC Investment (AGNC). As discussed in our Real Estate Earnings Preview, riding the strength of the housing market, residential mREITs reported continued stabilization last quarter following the dramatic declines earlier in the pandemic. Conditions have been more stable throughout the pandemic on the commercial side, particularly for the REITs focused on lending to the "less COVID sensitive" property sectors.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.55% today, on average, and outperformed their respective common stock issues by an average of 0.22%. So far in 2021, REIT Preferred stocks are higher by 7.10% on a price return basis and the average REIT preferred currently pays a dividend yield of 6.26% and trade at a slight premium to par value.

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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.

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