• Alex Pettee, CFA

REIT Earnings • Dividend Hikes • Week Ahead

Summary

  • U.S. equity markets continued their rally Monday ahead of a frenetic slate of earnings results this week while renewed COVID concerns in Asia have thrown a new curveball into macroeconomic dynamics.

  • Adding to gains of 1.6% last week, the S&P 500 advanced 0.5% today while the Mid-Cap 400 gained 0.5% and the Small-Cap 600 climbed 0.9%.

  • After leading the gains last week, real estate equities continued their strong performance today with the Equity REIT Index gaining 0.3% today with 13-of-19 property sectors in positive territory.

  • Shopping Center REIT Site Centers (SITC) gained 2.5% today after reporting better-than-expected Q3 results this morning and lifted its full-year FFO and NOI outlook powered by citing 99% rent collection.

  • We have another busy week of economic, earnings, and housing data in the week ahead. Highlights of the next 24 hours include New Home Sales tomorrow and results from REITs Sun Communities (SUI), American Campus (ACC), and REIT PotlatchDeltic (PCH) this afternoon.

Real Estate Daily Recap

U.S. equity markets continued their rally Monday ahead of a frenetic slate of earnings results this week while renewed COVID concerns in Asia have thrown a new curveball into the macroeconomic dynamic. Adding to gains of 1.6% last week, the S&P 500 advanced 0.5% today while the Mid-Cap 400 gained 0.5% and the Small-Cap 600 climbed 0.9%. The tech-heavy Nasdaq 100 led the way with 1.0% gains. After leading the gains last week, real estate equities continued their strong performance today with the Equity REIT Index gaining 0.3% today with 13-of-19 property in positive territory while Mortgage REITs advanced 0.6%.

As discussed in our Real Estate Weekly Outlook, equity markets are looking to extend their gains to a fourth-straight week amid a strong start to corporate earnings season which temporarily quelled stagflation concerns. Eight of the eleven GICS equity sectors finished higher today, led to the upside by the Consumer Discretionary (XLE) and Energy (XLE) sectors. Elsewhere, Bitcoin (BTC-USD) continued its recent surge while the Commodities (DJP) complex continued to rally as well. Homebuilders and the broader Hoya Capital Housing Index were higher ahead of a busy slate of earnings results and housing data over the next 48 hours.

We have another busy week of economic and housing data in the week ahead, kicking off on Tuesday with New Home Sales data for September along with home price index data for August from Case Shiller and the FHFA. On Thursday, we'll see Pending Home Sales data for September as well as the first look at third-quarter Gross Domestic Product. On Friday, we'll get a fresh look at inflation data with the PCE Price Index - the Fed's "preferred" gauge of inflation - which is expected to show that September recorded the highest annual rise in inflation in over 30 years. We'll also see Personal Income/Spending data on Friday along with a flurry of Purchasing Managers Index ("PMI") data throughout the week.

Equity REITs & Homebuilders

Last week, we published our Real Estate Earnings Preview. Real estate earnings season kicks into high gear this week with results from nearly 100 REITs and homebuilders this week. This afternoon, we'll hear results from manufactured housing REIT Sun Communities (SUI), office REITs Alexandria (ARE) and Brandywine (BDN), student housing REIT American Campus (ACC), and timber REIT PotlatchDeltic (PCH). We'll also hear results from homebuilders PulteGroup (PHM) this afternoon and Taylor Morrison (TMHC) and M/I Homes (MHO) tomorrow morning.

Shopping Center: Site Centers (SITC) gained 2.5% today after reporting better-than-expected Q3 results this morning and lifted its full-year FFO and NOI outlook. Powered by a recovery in rent collection to 99% in Q3, SITC now sees same-store net operating income rising 12.5-14.0%, up from its previous range of 10.5-13.0%. SITC now sees FFO growth of 22.1% at the midpoint of its guidance range, up 340 basis points from its prior outlook. Leasing results were also encouraging with SITC's lease rate climbing to 50bps from last quarter to 92.3% and reported new leasing spreads of 7.3% and renewal leasing spreads of 0.6% on a trailing twelve-month basis.

Mortgage REITs

Today we published Mortgage REITs: High Yield Is Back. Mortgage REITs - which endured punishing declines of 50-70% during the peak of the pandemic - have rallied back from the brink since mid-2020 to within shouting distance of record highs. The pandemic-driven wave of dividend cuts has given way to a frenzy of dividend hikes this year with 25 mREITs increasing their payouts, pushing the average yield to nearly 8%. After a sharp recovery, mREIT Book Values trended sideways in early 2021 amid declining interest rates and yield curve tightening, but third-quarter results should be helped by favorable yield-curve movements.

Per our Mortgage REIT Tracker, mREITs were mostly higher today with commercial mREITs gaining 1.0% following gains of 0.7% last week while residential mREITs advanced 0.2% following last week's gains of 0.9%. We'll hear results this afternoon from AGNC Investment (AGNC), Apollo Commercial (ARI), and KKR Real Estate (KREF). The average residential mREIT now pays a dividend yield of 8.4% while the average commercial mREIT pays a dividend yield of 6.5%.


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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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