• Alex Pettee, CFA

Home Sales Surge • REITs Lead • Earnings Ahead

Summary

  • U.S. equity markets climbed to fresh record-highs Tuesday as corporate earnings continue to top forecasts and amid relief that Democrat tax hike plans will likely be more modest than initially feared.

  • Adding to gains of 0.2% yesterday and setting a fresh closing high, the S&P 500 advanced 0.2% today but the Mid-Cap 400 slipped 0.7% and the Small-Cap 600 declined 0.7%.

  • Real estate equities continued their strong performance today following a slate of better-than-expected results with the Equity REIT Index gaining 0.3% today with 11-of-19 property in positive territory.

  • New Home Sales jumped 14% in September to a seasonally adjusted annual rate of 800k, significantly topping the consensus forecast of 760k. The September gain was the largest monthly increase since July 2020.

  • American Campus (ACC) rallied 2% after reporting better-than-expected results yesterday afternoon, citing strong enrollment trends at tier-one universities and limited supply growth.

Real Estate Daily Recap

U.S. equity markets climbed to fresh record-highs Tuesday as corporate earnings continue to top forecasts and amid relief that Democrat tax hike plans will likely be more modest than initially feared. Adding to gains of 0.2% yesterday and setting a fresh closing high, the S&P 500 advanced 0.2% today but the Mid-Cap 400 slipped 0.7% and the Small-Cap 600 declined 0.7%. Real estate equities continued their strong performance today following a slate of better-than-expected results with the Equity REIT Index gaining 0.3% today with 11-of-19 property in positive territory while Mortgage REITs declined 0.7%.

Eight of the eleven GICS equity sectors were higher today, led to the upside by the Energy (XLE), Utilities (XLU), and Healthcare (XLRE) sectors. Uncertainty over a recent COVID acceleration in China over the past week has slowed the rapid rise in Commodities (DJP) prices, which helped to push the 10-Year Treasury Yield lower by 2 basis points today to close at 1.62%. Residential REITs led the Hoya Capital Housing Index today as earnings results from residential REITs have so far confirmed that rents continue to soar across the country and across essentially all segments of the market.

The Census Bureau reported this morning that New Home Sales jumped 14% in September to a seasonally adjusted annual rate of 800k, significantly topping the consensus forecast of 760k. The September gain was the largest monthly increase since July 2020 and indicated that supply chain constraints have eased just enough to allow many of the largest homebuilders to increase production levels following a late-summer cool-down, but commentary over the last 24 hours from PulteGroup (PHM), Taylor Morrison (TMHC), and M/I Homes (MHO) echoed similar sentiment that supply chain issues are far from resolved, but that builders continue to sell homes as fast as they can be built, underscored by swelling backlogs.

Equity REITs & Homebuilders

Last week, we published our Real Estate Earnings Preview. Real estate earnings season kicks into high gear this week with results from nearly 100 REITs and homebuilders this week. After the close today, we'll hear results from a dozen REITs, an earnings slate highlighted by apartment REITs, Equity Residential (EQR), Essex Property (ESS), UDR Properties (UDR), office REITs Boston Properties (BXP), and Hudson Pacific (HPP), retail REITs Retail Opportunity (ROIC), industrial REIT Eastgroup (EGP), and data center REIT Digital Realty (DLR).

Student Housing: American Campus (ACC) rallied 2% after reporting better-than-expected results yesterday afternoon, citing strong enrollment trends at tier-one universities and limited supply growth. Driven by a 95.8% opening all occupancy and 3.3% average rental rate growth in the Fall semester, same-store NOI growth jumped 10.5% from last year. That compares with ACC's initial expectation of 92.0-94.0% leased with 2.5-3.0% average rental rate growth. CEO Bill Bayless commented that ACC is "experiencing the most substantial fundamental tailwinds we’ve seen in many years."

Manufactured Housing: Sun Communities (SUI) finished lower by 2% oday despite reporting another stellar "beat-and-raise" quarter. Following similarly strong results from Equity Lifestyle (ELS) last week, SUI boosted its full-year FFO growth outlook to 27.1% - up 310 basis points from its prior outlook - and boosted its full-year NOI growth outlook to 11.0% - up 70 basis points from its prior outlook. Driven by robust demand and limited supply of housing units, rental operators have benefited from a substantial increase in market rents across the country and throughout essentially all segments of the sector including MH units, apartments, and single-family rentals.

Mortgage REITs

Mortgage REITs were mostly lower today as commercial mREITs slipped 0.7% but remain higher by 0.2% this week. Residential mREITs declined 0.9% and are lower by 0.7% this week. AGNC Investment (AGNC) was roughly flat today after reporting in-line results yesterday afternoon, noting that its BVPS increased modestly in Q3, resulting in a total quarterly economic return of 2.3%. Apollo Commercial (ARI) slipped despite reporting solid results, noting that its BVPS climbed 0.4% in Q3 and commenting that it expects origination levels to reach pre-pandemic levels this year. KKR Real Estate (KREF) gained after reporting solid results with its BVPS rising 0.9% in Q3. The average residential mREIT now pays a dividend yield of 8.4% while the average commercial mREIT pays a dividend yield of 6.5%.

Yesterday, we published Mortgage REITs: High Yield Is Back. Mortgage REITs - which endured punishing declines of 50-70% during the peak of the pandemic - have rallied back from the brink since mid-2020 to within shouting distance of record highs. The pandemic-driven wave of dividend cuts has given way to a frenzy of dividend hikes this year with 25 mREITs increasing their payouts, pushing the average yield to nearly 8%. After a sharp recovery, mREIT Book Values trended sideways in early 2021 amid declining interest rates and yield curve tightening, but third-quarter results should be helped by favorable yield-curve movements.

We have another busy week of economic and housing data in the week ahead, kicking off on Tuesday with New Home Sales data for September along with home price index data for August from Case Shiller and the FHFA. On Thursday, we'll see Pending Home Sales data for September as well as the first look at third-quarter Gross Domestic Product. On Friday, we'll get a fresh look at inflation data with the PCE Price Index - the Fed's "preferred" gauge of inflation - which is expected to show that September recorded the highest annual rise in inflation in over 30 years. We'll also see Personal Income/Spending data on Friday along with a flurry of Purchasing Managers Index ("PMI") data throughout the week.

Coming Soon: Hoya Capital Income Builder

We're excited to announce that we'll be launching a new investing service here on Seeking Alpha on November 9th! Hoya Capital Income Builder will be the new exclusive home to all Hoya Capital premium research. Whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and an all-encompassing suite of tools and models to help build portfolios that fit your investment objectives.

We're offering significant loyalty discounts for the first 50 sign-ups to the service. To secure your place in line, simply fill-out the Google Form in the link with your email and your Seeking Alpha username, and we'll send you the discount on launch day! Click Here to Claim Discount.

To Continue Reading, Click Here To Visit Seeking Alpha!


Join our Mailing List on our Website

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: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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.

Glass Buildings
income builder 2021 24420.png
income builder trial button.png
apartment REITs
homebuilders ETFs
single family rental REITs
manufactured housing REITs
student housing REITs
data center REITs
Cell tower REITs
net lease REITs
industrial REITs
storage REITs
office REITs
mall REITs
REIT Preferreds and Bonds
hotel REITs
Timber REITs
healthcare REITs
REIT ETFs
Billboard REITs
shopping center REIT
High-Yield Real Estate ETFs
Real Estate CEFs
Casino REITs
cannabis REITs
prison REITs
mortgage REITs
real estate crowdfunding
REIT Portfolio Strategy
REITs Taxes
1/1

Explore our Real Estate Indexes

The Easy Way To Invest in Real Estate

RIET Hoya Capital High Dividend Yield ETF.png
HOMZ_Logo_Just Ticker.png
ETF express.png
high yield REIT investing hoya capital logo.png