• Alex Pettee, CFA

Jobs Report • REIT Earnings • Yields Jump

Summary

  • U.S. equity markets were mixed Friday after better-than-expected employment data eased concerns about an economic slowdown, but also may have accelerated the Fed's timeline for easing stimulus measures.

  • Pushing its weekly gains to roughly 1% and closing at record-highs, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 gained 0.4% and the Small-Cap 600 rallied 1.1%.

  • Real estate equities were mixed today - but were among the leaders this week - as REIT earnings season wrapped up with another slate of strong reports.

  • The U.S. economy added 942k jobs in July - a second-straight month of acceleration following several months of disappointing data. The accelerated pace of hiring comes as more states phase out the supplemental pandemic-related unemployment benefits.

  • Regency Centers (REG) rallied after reporting impressive results, noting a 31% surge in same-store NOI and now expects its full-year FFO to return to pre-pandemic levels - likely the first shopping center REIT to fully recover.

Real Estate Daily Recap

U.S. equity markets were mixed Friday after better-than-expected employment data eased concerns about an economic slowdown, but also may have accelerated the Fed's timeline for easing stimulus measures. Pushing its weekly gains to roughly 1% and closing at record highs, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 gained 0.4% and the Small-Cap 600 rallied 1.1%. Real estate equities were mixed today - but were among the leaders this week - as REIT earnings season wrapped up with another slate of strong reports. The Equity REIT Index slipped 0.2% today while Mortgage REITs gained 0.4%.

Six of the eleven GICS equity sectors finished higher on the day, led to the upside by the economically sensitive Materials (XLB) and Energy (XLE) sectors while Financials (XLF) rallied alongside a 7 basis point jump in the 10 Year Treasury Yield after hitting six-month lows earlier in the week. 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.

The Bureau of Labor Statistics reported this morning that the U.S. economy added 942k jobs in July - a second-straight month of acceleration following several months of disappointing data and above the consensus estimates of 870k. The strong BLS jobs report on Friday followed weaker-than-expected ADP Employment and Initial Jobless Claims data earlier in the week. The pace of hiring - the strongest in 11 months - comes as more states phase out the supplemental pandemic-related unemployment benefits which - in some cases - resulted in higher pay than the employment alternative.

Real Estate Earnings Updates

Today, we published our Real Estate Earnings Recap. REIT earnings season has provided critical information on the state of the real estate industry - a much-needed check-in amid fears of a potential "fourth wave" of the COVID pandemic. Results were significantly better-than-expected with roughly 95% of equity REITs beating consensus FFO estimates while more than 75% of the REITs that provide forward guidance boosted their full-year outlook. More remarkable was the unprecedented magnitude of these upward revisions. More than a dozen REITs boosted their full-year FFO growth outlook by more than 1,000 basis points from last quarter. Residential REITs led the charge in Q2 while shopping center REITs also delivered an impressive rebound.

Industrial: Cold storage operator Americold (COLD) slid nearly 4% today after reported disappointing results - one of just six REITs that lowered their full-year guidance in Q2 - citing lingering COVID-related impacts on global food supply chains and the global food supply chain continues to be impacted by the ongoing effects of COVID, especially "limitations on production due to disruptions and challenges in the labor market" that will "limit near-term performance." Plymouth (PLYM) was also a laggard today after maintaining its full-year outlook. Prior to COLD and PLYM, all six REITs that provide guidance boosted their full-year outlook.

Billboard: Following strong results and upward guidance from Lamar Advertising (LAMR) earlier in the week, Outfront (OUT)- which owns a more public-transit-heavy billboard portfolio - jumped more than 4% today after reporting signs of rapid improvement, commented that its "business is recovering more quickly than we expected, with AFFO returning solidly to positive". OUT announced plans to resume its dividend in Q3 while LAMR announced plans to boost its dividend above its pre-pandemic rate.

Shopping Center: Regency Centers (REG) rallied 2% today after reporting impressive results yesterday afternoon, noting a 31% surge in same-store NOI and now expects full-year FFO to return to pre-pandemic levels - likely the first shopping center REIT to fully recover. Shopping center REITs reported a near-complete normalization of rent collection in Q2, powering an impressive 19% average surge in same-store Net Operating Income ("NOI") growth. All nine of the REITs that provide guidance raised their full-year results - many by a significant margin - with an average upward revision of 640 basis points.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.6% today and ended the week roughly flat. Commercial mREITs gained 0.4% today to push their weekly gains to 1.2%. Great Ajax (AJX) surged 5% after reporting better-than-expected Q2 results yesterday afternoon. Ellington Financial (EFC) gained 1% after reporting that its Book Value Per Share ("BVPS") gained roughly 2% in Q2. PennyMac (PMT) slipped about 2% after reporting that its BVPS was roughly flat in Q2 at $20.77. Hannon Armstrong (HASI) was higher by about 1% after reporting results.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.09% today, on average, but underperformed their respective common stock issues by an average of 0.38%. Summit Hotels (INN) priced a new 5.875% Series F Cumulative Redeemable Preferred Stock, raising $100 million, and intends to use the net proceeds to redeem its 6.45% Series D Preferred (INN.PD) on September 4th. Elsewhere, Rexford (REXR) priced $400 million of 2.15% senior notes due 2031 to fund the redemption of its 5.875% Series A Preferred (REXR.PA) on August 16th.

Economic Data This Week

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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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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