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  • Alex Pettee, CFA

REIT Earnings • Jobs Week • Goods Inflation

Summary

  • U.S. equity markets finished mostly higher Monday - extending gains after the best month for stocks since November - ahead of a busy week of employment data and corporate earnings reports.

  • Following a gain of 0.1% last week, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 gained 0.6% and the Small-Cap 600 jumped by 1.2%.

  • Real estate equities were mixed today ahead of the busiest week of earnings season. The broad-based Equity REIT Index finished higher by 0.4% with 10-of-19 property sectors in positive-territory.

  • We'll hear reports from nearly 100 REITs this week including results from Realty Income (O), Agree Realty (ADC), Vornado (VNO), and Omega Healthcare (OHI) this afternoon.

  • It's Jobs Week. We'll see a full slate of employment data this week headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday.

Real Estate Daily Recap

U.S. equity markets finished mostly higher Monday - extending gains after the best month for stocks since November - ahead of a busy week of employment data and corporate earnings reports. Following a gain of 0.1% last week, the S&P 500 ETF (SPY) finished higher by 0.2% today while the Mid-Cap 400 (MDY) gained 0.6% and the Small-Cap 600 (SLY) jumped by 1.2%. Real estate equities were mixed today ahead of the busiest week of earnings season. The broad-based Equity REIT ETFs (VNQ) finished higher by 0.4% with 10-of-19 property sectors in positive territory while Mortgage REITs (REM) were higher by 0.3%.

As discussed in our Real Estate Weekly Outlook, U.S. equity markets have trended sideways over the past two weeks as intensifying COVID issues in India and Brazil and domestic inflationary concerns have offset a stellar slate of corporate earnings reports and economic data. Five of the eleven GICS equity sectors were higher on the day, led to the upside by the Energy (XLE) and Materials (XLB) sectors following PMI data this morning showing upward pressure on commodities prices. Homebuilders and the broader Hoya Capital Housing Index were higher today led by a jump from flooring supplier Mohawk (MHK) and ahead of a busy slate of results this afternoon.

Commercial Equity REITs

We're now at the halfway point of another newsworthy REIT earnings season and this afternoon, we'll publish our REIT Earnings Halftime Report. The major themes this quarter have been "Beat and Boost" and the revival of long-dormant "Animal Spirits" in the REIT sector. For revisions to forward guidance, residential REITs have reported the strongest results thus far while office REITs have been the weakest. We'll hear reports from nearly 100 REITs this week including Omega Healthcare (OHI) and Agree Realty (ADC) this afternoon, Healthpeak (PEAK) and National Retail (NNN) on Tuesday, Tanger Outlets (SKT) and Spirit Realty (SRC) on Wednesday, STORE Capital (STOR) and Regency Centers (REG) on Thursday.

Office: Alexander's (ALX) finished higher by 0.5% after reporting results this morning in which the NYC-focused REIT - which owns seven properties including the Bloomberg HQ building on Lexington Ave - reported rent collection of 95% and reported a year-over-year rise in FFO of 8.4% in Q1, showing signs of improvement after recording an annual FFO decline of 17.3% last year. We also saw a dividend increase from Armada Hoffler (AHH) today, which declared a $0.16/share dividend, a 6.7% increase from its prior dividend but still below its pre-pandemic rate of $0.21. Of the twelve office REITs to report results thus far, just two have increased their full-year guidance, the weakest in the REIT sector this quarter thus far. We'll hear results from Vornado (VNO) this afternoon.

Storage: Public Storage (PSA) finished lower by 1% today after unveiling its plans to boost same-store net operating income margins by 2%+ over the next three years at its Investor Day presentation. Last week, PSA reported strong results and initiated guidance calling for Core FFO growth of 8.9% this year powered by same-store NOI growth of 6.1%. PSA believes that it can increase its margins through a 25% payroll cost savings from its operating model transformation and a 30% utility cost savings from solar power and LED light returns. PSA targets long-term annual same-store NOI growth of 3.0% and long-term FFO growth of 6.7%-9.2% with a midpoint of 8.0% comprised of 3% from same-store growth, 0.8% from operating initiatives, 3% from portfolio growth, 0.8% from increasing the scale of its business and 0.5% from financial leverage and other line items. Last week, we published Storage REITs Urban Exodus Catalyzes Rebound.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.6% today after ending last week with gains of 2.1%. Commercial mREITs finished higher by 0.4% following gains of 0.4% last week. Colony Credit (CLNC) finished higher by about 1.5% after it completed its previously-announced management internalization transaction, breaking away from Colony Capital (CLNY) in a move expected to produce annual cost savings of 10-12 cents per share. Colony Credit is now an internally-managed REIT while Colony Capital continues to undergo a transformation to focus exclusively on the technology real estate sectors.

We'll hear results this week from 15 mortgage REITs including Invesco Mortgage (IVR), Two Harbors (TWO), Chimera Investment (CIM), MFA Financial (MFA), and New York Mortgage Trust (NYMT). Thus far, residential mREITs have reported an average increase in BVPS of about 3% this quarter while the reported BVPS for commercial mREITs has been flat.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.36% today, on average, but underperformed their respective common stock issues by an average of 0.81%. Ready Capital (RC) announced today that the tender offer for all outstanding shares of its 6.25% Series C Cumulative Convertible Preferred Stock (RC.PC) yielded 57% of the total shares outstanding. So far in 2021, REIT Preferred stocks are higher by 7.19% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.26% and trades at a slight premium to par value.

Economic Data This Week

We have another frenetic week of earnings reports and economic data in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of nearly 1,000,000 in April following similarly-sized gains last month as temporarily unemployed workers return to the labor force. We'll also see Construction Spending data on Monday, and a flurry of Purchasing Managers' Index (PMI) data throughout the week.

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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.

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