REIT Earnings Begin • Logistics Boom • Mortgage Tech
U.S. equity markets retreated from record-highs Monday - dragged down by pressure on large-cap technology stocks - ahead of a jam-packed week of corporate earnings reports and economic data.
Coming off gains of 1.4% last week, the S&P 500 finished lower by 0.5% today while the Mid-Cap 400 declined 0.5% and the Small-Cap 600 dipped 1.2%.
Real estate equities were the leaders today as REIT earnings season kicked off. The broad-based Equity REIT Index finished higher by 0.2% today with 11-of-19 property sectors in positive territory.
Prologis (PLD) kicked off REIT earnings season this morning with another impressive "beat and raise" quarter. The logistics giant boosted its 2021 guidance across all metrics.
Mortgage REIT Redwood Trust (RWT) announced today that it has invested in Liquid Mortgage, a startup that uses blockchain technology to make the mortgage ecosystem more efficient.
Real Estate Daily Recap
U.S. equity markets retreated from record-highs Monday - dragged down by pressure on large-cap technology stocks - ahead of a jam-packed week of corporate earnings reports and economic data. Coming off gains of 1.4% last week, the S&P 500 ETF (SPY) finished lower by 0.5% today while the Mid-Cap 400 (MDY) declined 0.5% and the Small-Cap 600 (SLY) dipped 1.2%. Real estate equities were the leaders today as REIT earnings season kicked. The broad-based Equity REIT ETFs (VNQ) finished higher by 0.2% today with 11-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) declined by 1.4%.
As discussed in our Real Estate Weekly Outlook, U.S. equity markets are coming off a "Goldilocks" week as long-term interest rates pulled back despite a stellar slate of economic data and corporate earnings reports. Nine of the eleven GICS equity sectors finished lower on the day, dragged to the downside by the Consumer Discretionary (XLY) and Technology (XLK) sectors. Homebuilders and the broader Hoya Capital Housing Index pulled back today following a strong week ahead of another busy week of housing data in the week ahead with the two major home sales reports.
On Thursday, we'll see Existing Home Sales data which is expected to show that the sales rate was roughly even with last month as the mere lack of available homes to sell has emerged as a near-term constraint on further upside. On Friday, we'll see New Home Sales data which is expected to show a solid jump in March from the weather-affected February data, consistent with the trends observed this week with Housing Starts data. We'll also be watching the weekly MBA Mortgage data on Wednesday, Jobless Claims data on Thursday, and PMI data on Friday.
Commercial Equity REITs
Just a few weeks after the final REITs reported Q4 earnings results, we've already begun Q1 real estate earnings season with results this morning from Prologis (PLD) and we'll hear results from American Campus (ACC) and Equity Lifestyle (ELS) this afternoon. Gear up for a frenetic month of newsflow as over the next four weeks, we'll hear results from more than 175 equity REITs, 40 equity REITs, and dozens of housing industry companies.
Industrial: On that point, Prologis (PLD) kicked off REIT earnings season this morning with another impressive "beat and raise" quarter. The logistics giant boosted its 2021 guidance across all metrics and CEO Hamid Moghadam commented that demand is as "strong as I have seen in my career." PLD now sees its cash same-store NOI rising 4.5%-5.0% during 2021, up from 3.50%-4.50% previously. Net effective rents (releasing spreads) surged 27.0% in Q1, driven by a 32.0% jump in rents in the U.S. market. This afternoon, we'll publish Industrial REITs: Out of Stock on The REIT Forum which will explain why demand for industrial real estate space is insatiable as businesses scramble to invest in logistics resiliency.
Office: Highwoods Properties (HIW) announced today that it will acquire a portfolio of office properties from diversified REIT Preferred Apartment Communities (APTS) for $769M including improvements and transaction cost. The portfolio is comprised of four Class A office assets in Charlotte and Raleigh and one mixed-use redevelopment site in Atlanta, along with two non-core assets. Highwoods plans to fund the acquisition by accelerating the sales of existing non-core assets and the acquisition is scheduled to close during Q3'21. In our Weekly Outlook, we explained how recovering valuations and ample access to capital has reignited the "animal spirits" in REIT world.
Malls: Pennsylvania REIT (PEI) - which emerged after a month-long stint in Chapter 11 bankruptcy last December - provided an update in which it noted that its liquidity profile has improved as rent collection rates and foot traffic at its properties have increased. PREIT commented that it received 119% of billed rents in Q1, up from 112% in Q4 2020 and 99% in Q3. Last week, half of its comparable properties posted traffic exceeding the same period in 2019. The forthcoming post-pandemic "suburban revival" offers a glimmer of hope for the enclosed mall format, but investors should be wary of jumping into a perennial "value trap" until fundamentals clearly stabilize.
Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 1.6% today following a decline of 0.4% last week. Commercial mREITs were lower by 1.5% today following last week's gains of 2.6%. The "animal spirits" are alive in the mREIT world as well as Redwood Trust (RWT) announced today that it has invested in Liquid Mortgage, a startup that uses blockchain technology to make the mortgage ecosystem more efficient. The two companies expect such process improvements to create significant cost savings throughout the mortgage chain that would result in lower borrowing costs for consumers.
REIT Preferreds & Bonds
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.06% today, on average, and outperformed their respective common stock issues by an average of 0.01%. In the bond markets, American Homes 4 Rent (AMH) announced that it closed on a $1.25B, sustainability-linked revolving credit facility with an initial maturity date in April 2025, up from its existing $800M facility, giving it expanded borrowing capacity at a more favorable pricing grid to support its growth initiatives. So far in 2021, REIT Preferred stocks are higher by 6.41% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.30% and trades at a slight discount to par value.
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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.