Hoya Capital Research & Index Innovations  

Hoya Capital Research & Index Innovations is an affiliated index provider and research firm that builds custom indexes tracking U.S. commercial and residential real estate sectors, including indexes tracked by exchange-traded funds (ETFs). 

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  • Alex Pettee, CFA

Jobs Surprise • Pivot Pushback • REIT Earnings

  • U.S. equity markets were mixed Friday after a surprisingly strong payrolls report cast doubt on the likelihood of a "Fed pivot" towards less aggressive tightening, sending benchmark interest rates sharply higher.

  • The S&P 500 retreated 0.2% today but managed to hold onto modest weekly gains of 0.3% - its third-straight week of gains. Mid-Caps posted gains of 0.6% today while the Nasdaq lagged.

  • Real estate equities were among the better-performers for a second day following a strong slate of earnings reports and another pair of dividend hikes. The Equity REIT Index gained 0.3%.

  • CubeSmart (CUBE) - which we named as one of our three "Best Ideas in Real Estate" last month - rallied nearly 4% today after reporting stellar earnings results and significantly raising its full-year FFO and NOI outlook.

  • Mortgage REIT Great Ajax (AJX) hiked its dividend for the second time this year. Small-cap mREIT Western Asset (WMC) surged nearly 20% today after announcing that it's exploring a potential sale. WMC trades at a nearly 40% discount to its reported book value.

 

Real Estate Daily Recap

U.S. equity markets were mixed Friday after a surprisingly strong payrolls report cast doubt on the likelihood of a "Fed pivot" towards less aggressive tightening, sending benchmark interest rates sharply higher. The S&P 500 retreated 0.2% today but managed to hold onto modest weekly gains of 0.3% - its third-straight week of gains. The Small-Cap 600 and Mid-Cap 400 each finished higher by 0.5% while the tech-heavy Nasdaq 100 dipped 0.8%. Real estate equities were among the better-performers for a second day following a strong slate of earnings reports and another pair of dividend hikes. The Equity REIT Index finished higher by 0.3% today with 11-of-18 property sectors in positive territory while the Mortgage REIT Index advanced 0.3%.

The critical nonfarm payrolls data report this morning showed that the U.S. economy added 528k jobs in July - more than double the consensus estimate - a report that has increasingly become an outlier amid a two-month stretch of disappointing economic data. Combined with the hotter-than-expected wage data, investors now expect the Fed to keep the pedal to the metal in its aggressive rate hiking cycle. Bonds across the credit and maturity curve were under significant pressure today as the 10-Year Treasury Yield surged 16 basis points back up to 2.84% after yesterday dipping to its second lowest closing-level since early April.

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 this weekend.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Storage: The most impressive property sector this earnings season was once again the storage REIT sector. CubeSmart (CUBE) - which we named as one of our three "Best Ideas in Real Estate" last month - rallied nearly 4% today after reporting stellar earnings results and significantly raising its full-year FFO and NOI outlook. Fueled by strong rent growth in its critical New York metro market, CUBE now projects full-year FFO growth of 18.0% - up 450 basis points from its prior outlook. Public Storage (PSA) was also among the better-performer today after it boosted its full-year FFO growth outlook by 120 basis points to 18.7%. Notably, PSA commented that "new customer demand through the summer leasing season has been exceptional... We have good pricing dynamics on both, move-ins and with existing customer rate increases, leading to the highest rent levels we have seen historically."

Industrial: Cold storage operator Americold (COLD) dipped more than 4% after reporting ongoing margin pressure in its services-heavy business due to tight labor markets and ongoing supply chain difficulties.COLD maintained its full-year outlook which calls for a nearly 9% decline in its FFO, but did raise its property-level NOI growth target by 300 basis points to 3.0% driven by solid occupancy improvement as COLD recorded its first year-over-year increase in occupancy since the second quarter of 2020. On labor pressures, COLD noted that turnover is "significantly elevated" and commented that it doesn't expect the labor market to be full-normalized until the back-half of next year.

Shopping Center: The strong earnings season for shopping center REITs concluded with a pair of solid "beat and raise" reports. Regency Centers (REG) was among the outperfomers today after boosting its full-year FFO outlook by 170 basis points citing "robust leasing activity." Philips Edison (PECO) was also among the leaders after raising its full-year FFO outlook by 50 basis points while noting that it achieved new and renewal leasing spreads of 20.1%, and record occupancy of 96.8%. As noted in our recent report - Winning The Last Mile - shopping center fundamentals are now as strong – if not stronger than before the pandemic. Occupancy rates climbed to the highest level since early 2015 while rental rates have continued to accelerate despite the broader economic slowdown.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs advanced today following a pair of dividend hikes and upbeat slate of earnings results as commercial mREITs advanced 0.9% while residential mREITs gained 0.8%. Western Asset (WMC) surged nearly 20% today after announcing a "review of strategic alternatives for the Company aimed at enhancing shareholder value, which may include a sale or merger." WMC currently trades at a roughly 40% discount to its reported book value per share of $23.23 as of the end of Q2. Elsewhere, Great Ajax (AJX) lagged today despite reporting better-than-expected results and hiking its quarterly dividend for the second time this year to $0.27 per share.

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, REIT Preferred stocks finished lower by 1.06% today, on average. REIT Preferreds are lower by roughly 5% on a total return basis this year after ending 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now roughly 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of 6.89%.

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.

Hoya Capital Research & Index Innovations (“Hoya Capital”) is an affiliate of Hoya Capital Real Estate, a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations provides non-advisory services including market commentary, research, and index administration focused on publicly traded securities in the real estate industry.


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