• Alex Pettee, CFA

Red-Hot Inflation • REIT Earnings • Elections Loom

Summary

  • U.S. equity markets finished higher Friday - pushing the major averages firmly into positive-territory for the week - despite downbeat earnings reports from mega-cap tech firms Amazon and Apple.

  • Pushing its winning streak to four-straight weeks, the S&P 500 gained 0.2% today while the Mid-Cap 400 gained 0.1% but the Small-Cap 600 slipped 0.5%.

  • Real estate equities were lower today - but held onto modestly weekly gains - with the Equity REIT Index lower by 1.1% today with 5-of-19 property sectors in positive territory.

  • The fate two major tax-and-spending plans - the "Build Back Better" and infrastructure bills - may hinge on the outcome of several closely-watched elections next week.

  • Apartment Income (AIRC) rallied after reporting that rents accelerated into October with new rates surging 13.5% and renewal rates higher by 14.1% - the highest renewal rental rate ever reported by a multifamily REIT.

Real Estate Daily Recap

U.S. equity markets finished higher Friday - pushing the major averages firmly into positive-territory for the week - despite downbeat earnings reports from mega-cap tech firms Amazon and Apple and red-hot inflation data. Pushing its winning streak to four-straight weeks, the S&P 500 gained 0.2% today while the Mid-Cap 400 gained 0.1% but the Small-Cap 600 slipped 0.5%. Real estate equities were lower today - but held onto modestly weekly gains - with the Equity REIT Index lower by 1.1% today with 5-of-19 property sectors in positive territory while Mortgage REITs slipped 0.5%.

The 10-Year Treasury Yield ended the week off by 10 basis points, reflecting an increased recognition that the fate two major tax-and-spending plans - the "Build Back Better" and infrastructure bills - may hinge on the outcome of several closely-watched elections next week which are increasingly being viewed as a referendum on the Biden agenda. 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.

Equity REIT Earnings Updates

Apartments: Apartment Income (AIRC) rallied more than 2% today after continuing the trend of stellar results from residential REITs amid a surge in market rent growth. AIRC reported that rents accelerated into October with new rates surging 13.5% and renewal rates higher by 14.1% - the highest renewal rental rate ever reported by a multifamily REIT. Camden (CPT) was also higher today after reporting it also posted a "beat-and-raise" quarter, hiking its full-year FFO growth outlook to 9.6% - up 200 basis points from last quarter. CPT somehow reported even stronger leasing results with new lease rates higher by 19.8% in Q3. Together, CPT and AIRC were the first REITs to report double-digit rent growth on renewed leases for a full quarter.

Industrial: Stag Industrial (STAG) was lower by about 2% after reporting results yesterday afternoon in which it maintained its full-year NOI guidance but hiked its full-year FFO growth outlook to 8.5% - up 110 basis points from its prior outlook. PS Business Parks (PSB) was lower by about 1% today after reporting results in line with consensus estimates yesterday afternoon.

Office: We've now heard results from 14 of the 25 office REITs. While WFH headwinds clearly persist, the office REIT outlook has brightened in recent months and results thus far have continued the positive trends from Q2. Nine of the eleven REITs that provide FFO guidance raised their full-year outlook. Cousins Property (CUZ) was among the leaders today after rising its full-year outlook by 30 basis points. Corporate Office (OFC) declined despite boosting its full-year FFO growth outlook by 140 basis points to 5.1%.

Net Lease: Netstreit (NTST) dipped after lowering its full-year FFO outlook - just the second REIT to lower its guidance this quarter - but still expects 36.2% FFO growth this year. WP Carey (WPC) was also under pressure after holding its full-year outlook steady with 5.1% FFO growth expected this year. Inflation was a key topic in its earnings call as the firm noted that among net lease REITs, WPC is "uniquely poised to benefit from inflation, with the vast majority of our CPI-linked leases scheduled for rent increases over the next few quarters."

Shopping Center: Kite Realty (KRG) was little-change today after reporting in-line results yesterday afternoon. KRG reported a sequential acceleration in same-store NOI to 10.8% - the first among five shopping center REITs to reporting higher NOI in Q3 compared with Q2. Due to the completed merger with Retail Properties - which closed earlier this month - KRG withdrew its 2021 guidance and plans to issue 2022 guidance next quarter.

Healthcare: LTC Properties (LTC) dipped more than 5% today after reporting results yesterday afternoon that reflected an uptick in unpaid rents from several skilled nursing operators - issues that Omega Healthcare (OHI) warned about in late September. OHI, along with the third major skilled nursing REIT Sabra Healthcare (SBRA) were each lower by more than 3% on the day as well. LTC collected 84% of rents in Q3 - down from 86% in Q2 and 87% in Q1 - with roughly 10% of rents classified as "delinquent" attributed to SNF operators Senior Care, Abri Health, and Senior Lifestyle. Elsewhere, Community Healthcare (CHCT) hiked its dividend for the fourth time this year.

Mortgage REITs

Mortgage REITs were mixed today as residential mREITs slipped 0.5% to push their weekly decline to 1.7%. Commercial mREITs were fractionally higher to end the week with gains of 0.1%. Arbor Realty (ABR) gained roughly 1% today after reporting better-than-expected results and boosting its dividend for the fourth time this year. Orchid Island (ORC) was higher after reporting yesterday afternoon that its Book value Per Share ("BVPS") rose about 1% in Q3 to $4.77. Ladder Capital (LADR) was also higher after reporting solid results and noting that its BVPS was roughly unchanged in Q3.

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: 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.

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