REIT Earnings • China Crackdown • Vaccine Mandates?
Summary
U.S. equity markets were lower Tuesday as a positive slate of earnings reports was offset by renewed COVID concerns and discussion of potential mask and vaccine mandates.
Retreating from yesterday's record highs, the S&P 500 declined by 0.5% today while the Mid-Cap 400 slipped 0.7% and the Small-Cap 600 dipped 1.1%. The tech-heavy Nasdaq dipped 1.2%.
Real estate equities were among the leaders today amid a busy stretch of earnings reports. The Equity REIT Index gained 0.6% with 15-of-19 property sectors in positive-territory.
Apartment REIT earnings results over the last 24 hours confirmed recent data that apartment rents continue to surge across the country with no signs of slowing. NexPoint achieved 14.2% rent growth on new leases.
Homebuilder PulteGroup (PHM) outperformed today after reporting strong results and announcing a new partnership with single family rental REIT Invitation Homes (INVH) to construct up to 7,500 built to rent homes.
Real Estate Daily Recap
U.S. equity markets were lower Tuesday as a positive slate of earnings reports was offset by renewed COVID concerns and discussion of potential mask and vaccine mandates. Retreating from yesterday's record highs, the S&P 500 declined by 0.5% today while the Mid-Cap 400 slipped 0.6% and the Small-Cap 600 dipped 1.1%. The tech-heavy Nasdaq dipped 1.2%. Real estate equities were among the leaders today amid a busy stretch of earnings reports as the Equity REIT Index gained 0.6% with 15-of-19 property sectors in positive territory while Mortgage REITs declined 0.7%.
A sharp sell-off in Chinese stocks - driven by the CCP's sweeping crackdown across its technology and education industries - pressured the U.S. Technology (XLK) and Communications (XLC) sectors ahead of earnings reports this afternoon from Apple (AAPL) and Microsoft (MSFT). The domestic-focused, yield-sensitive equity sectors were the leaders today with Utilities (XLU) and Real Estate (XLRE) leading the way while homebuilders and the broader Hoya Capital Housing Index were also among the outperformers today following a strong slate of earnings results and home price data reflecting a continued imbalance of supply and demand.
Commercial Equity REITs
As discussed in our Real Estate Earnings Preview, REIT earnings season kicks into high gear this week, and over the next month, we'll hear results from more than 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. The highlights of this afternoon's results include apartment REIT Equity Residential (EQR), self-storage REIT ExtraSpace (EXR), net lease REIT EPR Properties (EPR), office REITs Boston Properties (BXP), Highwoods (HIW), and Paramount (PGRE), and industrial REITs EastGroup (EGP) and STAG (STAG).
Apartment: Earnings results over the last 24 hours confirmed recent data that apartment rents continue to surge across the country with no signs of slowing. NexPoint (NXRT) finished slightly lower today despite reporting a 14.2% surge in new lease rates and boosting its full-year FFO growth outlook by 540bps to 9.5% and its NOI outlook by 160bps to 5.2%. Independence (IRT), meanwhile, reported that new lease rates surged 11.4% in Q2 while also boosting its full-year NOI and FFO growth outlook. We'll hear results from Equity Residential (EQR) after the bell today.
Sticking in the apartment sector, Independence also announced plans to merge with non-traded REIT Steadfast Apartments, forming a combined company that will own a portfolio of 131 apartment communities comprising approximately 38,000 units with a market capitalization of roughly $4 billion. IRT will be the surviving entity and IRT's stockholders are expected to own ~50% of the combined company's equity, funded with a 14M common equity stock sale announced yesterday afternoon as well. The transaction, which is expected to close during Q4, is expected to be immediately accretive to IRT’s Core FFO per share.
Timber: PotlatchDeltic (PCH) was higher today after reporting solid Q2 results. Adjusted EBTIDA – the most closely watched metric – beat consensus by about 12, rising to $275 million, which topped Q1’s prior record, driven by their Wood Products segment which were helped by the historic surge in lumber prices in Q2. We expect discretionary repair and remodeling activity to pick-up in the back-half of this year as delayed projects - many of which were delayed in part because of soaring lumber prices - are resumed as lumber prices have returned to more "normal" levels. We'll hear results from sector stalwart Weyerhauser (WY) on Friday.
Homebuilders: PulteGroup (PHM) was flat today - outperforming most of its homebuilding peers - after reporting strong results and announcing a new partnership with single family rental REIT Invitation Homes (INVH) to construct up to 7,500 built to rent homes. We’ve discussed for several years how these types of SFR-builder partnerships made strategic sense, and we’re now seeing these concepts put into action. Among the four builders to report thus far, PHM’s results have been perhaps the most impressive with order growth jumping 28% while the size of its backlog continuing to swell – now up 52% from last year. We continue to see the homebuilding sector as one of the most attractively-valued segments of the real estate market.
Student Housing: American Campus (ACC) was among the leaders today after reporting encouraging Q2 results and initiating full-year guidance well above Street estimates. ACC - which focuses primarily on flagship state Universities in the Sunbelt region - reported that its pre-leasing accelerated significantly since Q1, rising to 91.7% for the upcoming academic year. Same-store NOI growth surged 11.6% in the quarter from last year on better-than-expected Spring and Summer occupancy rates. Full-year guidance calls for roughly flat NOI and FFO growth this year with the company expecting a full recovery by the following academic year. Importantly, the company remains on track for its massive Disney (DIS) campus housing project, which will account for nearly 10% of revenues upon completion in 2023.
Healthcare: Lab space operator Alexandria (ARE) rallied about 2% today after reporting solid results, raising its same-store cash NOI growth outlook to 5.7% from 5.3% at the midpoint. ARE held its FFO outlook steady from its updated outlook provided last month (revised 30bps higher from its Q1 guidance). Rental rates on renewals/re-leases were impressive - up 25.4% on a cash basis – and resulted in a 100bps boost to ARE’s rental rate growth guidance to 18.5% at the midpoint. While medical office REITs have faced similar WFH headwinds as their traditional office peers, lab space remains by far the most attractive and in-demand segment of the broader office market.
Mortgage REITs
Mortgage REIT coverage and commentary throughout earnings season is now exclusively provided to The REIT Forum subscribers. We heard earnings results from AGNC Investment (AGNC), Apollo Commercial (ARI), and KKR Real Estate (KREF) over the past 24 hours. Last week, we published Mortgage REITs: High Yield Bargains. Mortgage REITs endured punishing declines during the pandemic, but have nearly tripled from their lows and are back within shouting distance of pre-pandemic highs.
REIT Preferreds & Capital Raising
Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.18% today, on average, but outperformed their respective common stock issues by an average of 0.57%. So far in 2021, REIT Preferred stocks are higher by 9.00% on a price return basis. The average REIT preferred pays a current yield of 5.98% and trades at a slight premium to par value.
Economic Data This Week
We have another jam-packed slate of housing data and earnings reports this week, kicking off today on Monday New Home Sales and on Tuesday, we saw home price data from Case Shiller and the FHFA. On Wednesday, we'll hear commentary once again from Fed Chair Powell following the FOMC interest rate decision. On Thursday, we'll get our first look at second-quarter GDP, which is expected to show an 8.2% annualized gain, and we'll also see Pending Home Sales data for June. On Friday, we'll see inflation data with the PCE Price Index - the Fed's "preferred" gauge of inflation - which is expected to show that prices are rising at the fastest level in at least a decade as well as Personal Income & Spending data.
To Continue Reading, Click Here To Visit Seeking Alpha!
Join our Mailing List on our Website
The REIT Forum is now the exclusive home to Hoya Capital premium research. 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: 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.