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  • Alex Pettee, CFA

REIT Earnings • Rates Decline • Builders Rebound

  • U.S. equity markets continued their best three-day rally since May, lifted by a solid slate of corporate earnings reports and a decline in inflation expectations following a higher-than-expected ECB rate hike.

  • Extending its week-to-date gains to 3.5%, the S&P 500 advanced another 1.0% today while the tech-heavy Nasdaq 100 rallied 1.4% to push its weekly gains to over 5%.

  • Real estate equities were broadly higher today as well following a very better-than-expected slate of earnings reports across the homebuilder, industrial, and technology REIT sectors.

  • DR Horton (DHI) - the nation's largest homebuilder - rallied nearly 4% after reporting results that were not as weak as analysts feared, commenting that its "still seeing a very good level of core demand out there."

  • First Industrial (FR) - which we own in the REIT Dividend Growth Portfolio - was among the leaders today after reporting stellar results and significantly raising its full-year outlook as industrial real estate demand has shown few signs of slowing.

Income Builder Daily Recap

U.S. equity markets advanced Thursday - posting their best three-day rally since May - lifted by a solid slate of corporate earnings reports and a decline in inflation expectations following a higher-than-expected ECB rate hike. Extending its week-to-date gains to 3.5%, the S&P 500 advanced another 1.0% today while the tech-heavy Nasdaq 100 rallied 1.4% to push its weekly gains to over 5%. Real estate equities were broadly higher today as well following a very better-than-expected slate of earnings reports across the homebuilder, industrial, and technology REIT sectors. The Equity REIT Index gained 1.0% today with 14-of-18 property sectors in positive territory while the Mortgage REIT Index gained 1.0%. Homebuilders and the broader Hoya Capital Housing Index were among the leaders following strong results from DR Horton, which noted that it is still seeing a "good level of core demand."


Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Homebuilders: DR Horton (DHI) - the nation's largest homebuilder - rallied nearly 4% after reporting results that were not as weak as analysts feared, commenting that its "still seeing a very good level of core demand out there." Notably, while DHI brought down its full-year outlook, it continues to see revenue growth of 23% for the full-year. DHI noted that its cancellation rate "increased sharply in June" and stayed elevated in June but "has not continued on a trend much higher." Investors remain historically bearish on homebuilders with DHI currently trading with a P/E below 5x based on updated EPS estimates. Tri Pointe (TPH) finished lower by about 1% after its results were relatively solid - meeting or exceeding its prior guidance across all metrics - but indicated a more cautious outlook than DHI, withdrawing its full-year outlook citing "quickly changing market conditions and the significant uncertainty related to the broader economy."

Industrial: First Industrial (FR) - which we own in the REIT Dividend Growth Portfolio - was among the leaders today after reporting stellar results and significantly raising its full-year outlook. Citing strong leasing trends, FR now sees FFO growth of 11.2% this year - up 200 basis points from its prior outlook. Notably, FR's occupancy rate increased to fresh record-highs of 98.4%, up nearly 2 full percentage points over 2Q21 as logistics demand has shown few signs of cooling. Rexford Industrial (REXR) also gained after reported similarly strong earnings results and boosted its full-year outlook. REXR raised its full-year FFO growth outlook by 150 basis points to 14.9% and its full-year NOI growth outlook by 150 basis points to 8.75%. Noting that "tenant demand continues to exceed supply," REXR reported incredible leasing spreads of 83% GAAP and 62% cash on 1.4 million square feet of new and renewed leases with its occupancy rate at record highs above 99%.

Cell Tower: Crown Castle (CCI) advanced after reporting strong results yesterday afternoon, maintaining its full-year outlook calling for FFO growth of 5.9% and revenue growth of 9.5%. Of note, CCI reiterated its belief that the "U.S. represents the highest growth and lowest risk market in the world for communications infrastructure ownership" and has dropped the "International" from its company name. CCI also reiterated its long-term guidance for annual dividend per share growth of 7-8%. Far more than its peers American Tower (AMT) and SBA Communications (SBAC), CCI continues to invest heavily in small-cell deployment and high-capacity network fiber, noting that it expects to double the rate of new small cells in its portfolio in 2023. Small-cell co-location is expected to be the driving force behind the faster roll-out- consistent with our long-held belief that municipalities and zoning authorities would be reluctant to approve single-tenant "mini-cell towers."

Yesterday, we published our REIT Earnings Preview which discusses the major themes and metrics we'll be watching across each of the major property sectors this earnings season. Since the start of last earnings season, the Equity REIT Index has declined 16%, slightly lagging the 12% decline in the S&P 500 during this time while the 10-Year Yield is essentially after a brief surge to 3.50%. The past quarter has seen a reversal in property sector performance trends since early in 2022 with interest-rate-sensitive REITs catching a bid while pro-cyclical REITs have lagged on recession concerns.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs continued their strong week with residential mREITs gaining 1.4% while commercial mREITs advanced 1.0%. On another slow down of mREIT-related newsflow, Lument Finance (LFT) and Chimera (CIM) led to the upside while TPG Real Estate (TRTX) and Angel Oak Mortgage (AMOR) lagged. Mortgage REIT earnings season kicks off next week covering the period that included the sharp bond market sell-off from mid-April through mid-June. Analysts expect that residential mREITs will report average BVPS declines of around 10% in the quarter while commercial mREIT BVPS are expected to be roughly flat, but mortgage-backed bond valuations are on-pace for one of their best months on record in July as rates have moderated.

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, REIT Preferred stocks finished lower by 0.05% today, on average. REIT Preferreds are lower by roughly 10% on a total return basis this year after ending 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now roughly 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of 6.97%.

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 published this weekend.

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.

Hoya Capital Research & Index Innovations (“Hoya Capital”) is an affiliate of Hoya Capital Real Estate, a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations provides non-advisory services including market commentary, research, and index administration focused on publicly traded securities in the real estate industry.


This published commentary is for informational and educational purposes only. Nothing on this site nor any commentary published by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. This commentary is impersonal and should not be considered a recommendation that any particular security, portfolio of securities, or investment strategy is suitable for any specific individual, nor should it be viewed as a solicitation or offer for any advisory service offered by Hoya Capital Real Estate. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.


The views and opinions in all published commentary are as of the date of publication and are subject to change without notice. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Any market data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any outlook made in this commentary will be realized.


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