• Alex Pettee, CFA

Earnings Frenzy • Dividend Raises • Home Sweet Home

Summary

  • U.S. equity markets were mostly higher Thursday with the S&P 500 eclipsing fresh record-highs as better-than-expected corporate earnings reports and positive coronavirus trends offset mixed employment data.

  • Pushing its week-to-date gains to 0.8%, the S&P 500 finished higher by 0.2% today while the Dow Jones Industrial Average finished lower by 7 points.

  • Real estate equities were mostly-higher today amid a frenetic 48-hours of REIT earnings reports as the Equity REIT ETFs gained 0.2% with 13-of-19 property sectors in positive territory.

  • We've passed the halfway point of REIT earnings season, which continues to trend better-than-expected. Six more equity REITs boosted their dividend over the last 24 hours, pushing the total to 18 so far this year.

  • Zillow (Z) surged nearly 18% today after reporting a strong fourth-quarter which saw record-levels of traffic on its website. Zillow expects "an even stronger housing market this year with home sales rising 21% with double-digit home price appreciation."

Real Estate Daily Recap

U.S. equity markets were mostly higher Thursday with the S&P 500 eclipsing fresh record-highs as better-than-expected corporate earnings reports and positive coronavirus trends offset mixed employment data. Pushing its week-to-date gains to 0.8%, the S&P 500 ETF (SPY) finished higher by 0.2% today while the Dow Jones Industrial Average (DIA) finished lower by 7 points. Real estate equities were mixed today amid a frenetic 48-hours of REIT earnings reports as the broad-based Equity REIT ETFs (VNQ) gained 0.2% today with 13-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) declined by 0.3%.

Four of the eleven GICS equity sectors finished on higher today, led to the upside by the Technology (XLK), Healthcare (XLV), and Communications (XLC) sectors. Homebuilders and the broader Hoya Capital Housing Index were among the leaders again today led by a 17% surge from Zillow (Z), which reported a very strong fourth-quarter and saw record-levels of traffic on its website. Zillow expects "an even stronger housing market this year with home sales rising 21% with double-digit home price appreciation."

Real Estate Earnings Update

Real estate earnings season kicked into high gear this week with roughly four dozen REITs reporting results along with a handful of housing companies. Last week, we published REIT Earnings Preview: Who Paid The Rent where we explained that we're expecting a historic year for dividend increases following the wave of cuts last year. On cue, we've seen six more equity REITs boost their dividends over the last 24 hours: Apline Income (PINE), Whitestone (WSR), Rexford (REXR), First Industrial (FR), Healthcare Realty (HR), and Equinix (EQIX) and have now seen 18 boosts so far this year.

Industrial: Earnings from industrial REITs continue to impress across-the-board with clear signs of reacceleration in core metrics in 2021 following an already strong 2020. Rexford (REXR) finished higher by 0.5% after reporting that its FFO per share rose by 7.3% in 2020 and expects another 7.2% growth in 2021 while also boosting its dividend by 12%. Terreno Realty (TRNO) finished higher by 2.5% after reporting a strong 4.7% rise in same-store NOI growth for full-year 2020. First Industrial (FR) finished higher by 0.5% after reporting that its FFO per share rose by 5.7% in 2020, but expects some moderation in 2021 with guidance calling for 3.3% growth. Finally, STAG Industrial (STAG) finished higher by 0.9% after reporting a steady quarter.

Apartments: The sharp divergence in fundamentals has continued for the sunbelt/suburban-focused multifamily versus coastal/urban-focused multifamily REITs. Sunbelt-focused Independence Realty (IRT) reported strong results yesterday afternoon, noting that its same-store NOI actually increased by 1.8% in full-year 2020 and sees NOI growing by another 2.5% in 2021. Equity Residential (EQR) reported yesterday afternoon that its full-year same-store NOI declined by -6.6% as EQR's urban markets remain under significant pressure with blended lease rates lower by 25% in Q4 from last year and were lower by the same magnitude in January. Results from Sunbelt-focused Bluerock Growth (BRG) and coastal-focused Apartment Income (AIRC) followed a similar pattern. Sunbelt REITs are expecting SSNOI growth of 1% in 2021 while coastal REITs expect NOI to decline by 6% this year.

Shopping Centers: Acadia Realty (AKR) jumped 6.2% after reporting yesterday afternoon that it collected 91% of rents in Q4 while recording year-over-year same-store NOI ("SSNOI") growth of -14.2%, an improvement from Q3's rate of -21.4% while cash leasing spreads saw a decent year-over-year gain of 5.8%. Kimco Realty (KIM) finished higher by 1.7% after reporting this morning that it collected 92% of rents in Q4 while its year-over-year SSNOI was lower by -10.5%. Similar to AKR, Kimco recorded a decent 6.0% cash leasing spread. This afternoon, we'll hear results from Brixmor (BRX), Federal Realty (FRT), Kite Realty (KRG), and Regency Centers (REG).

Malls: Macerich (MAC) finished lower by 2.0% after reporting results this morning. MAC, which has reported preliminary results last week, confirmed that its same-store NOI plunged 33.3% in Q4 to end the year lower by 21.6%. FFO per share was also confirmed to have dipped 39% in full-year 2020, but MAC sees flat FFO growth for 2021. Also of note, MAC reported a -8.6% dip in leasing spreads, a bit worse than SPG's -6.8% rate reported earlier in the week, and suggesting continued downward pressure on mall rents and NOI. As with Simon, while MAC's reported rent collection has improved to above 90%, we estimate that MAC's gross collection rate before abatements is 70-75%.

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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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