REIT Earnings Updates • Rents Soar • Homebuilders Lead
U.S. equity markets were broadly higher Thursday amid the busiest 48-hour stretch of corporate earnings reports after a downbeat slate of economic data eased concerns about persistent inflationary pressure.
Bouncing back from two days of declines, the S&P 500 finished higher by 0.4% today while the Mid-Cap 400 rallied 1.0% and the Small-Cap 600 each jumped 1.2%.
Led by housing-related and reopening sensitive sectors real estate equities were mostly higher today as the Equity REIT Index finished fractionally higher with 14-of-19 property sectors in positive territory.
Residential REITs continue to report blowout reports as rents are soaring across essentially every market throughout the country. Sunbelt-focused residential REITs are seeing 10-15% higher rents on new leases.
Homebuilders soared today as well following an upbeat slate of results from Meritage and MDC Holdings. Builders reported they continue to sell homes as fast - or faster - than they can be built.
Real Estate Daily Recap
U.S. equity markets were broadly higher Thursday amid the busiest 48-hour stretch of corporate earnings reports after a downbeat slate of economic data eased concerns about persistent inflationary pressure. Bouncing back from two days of declines, the S&P 500 finished higher by 0.4% today while the Mid-Cap 400 rallied 1.0% and the Small-Cap 600 each jumped 1.2%. Led by housing-related and reopening sensitive sectors real estate equities were mostly higher today as the Equity REIT Index finished fractionally higher with 14-of-19 property sectors in positive territory while Mortgage REITs gained 1.4%.
The historically strong quarter for corporate earnings season - with 91% of S&P 500 components beating EPS estimates - has contrasted with a stretch of weaker-than-expected economic reports including GDP and jobless claims data this morning. Regardless, it was a "risk-on" day today with nine of the eleven GICS equity sectors finishing higher, led to the upside by Materials (XLB) and Consumer Discretionary (XLY) stocks. Homebuilders and the broader Hoya Capital Housing Index delivered a strong rally following a stellar slate of earnings reports from across the housing ecosystem over the last 24 hours.
Real Estate Earnings Updates
Apartment: Sunbelt-focused Mid-America (MAA) jumped after reporting strong results, boosting its full-year NOI guidance by 280 bps to 3.8% and its FFO guidance by 440 bps to 5.6%. MAA achieved blended rent growth of 8.2% in Q2 and "above 12%" so far in July. Coastal-focused AvalonBay (AVB) rallied after introducing full-year NOI and FFO guidance above the street range, and noting a similarly rapid acceleration in rent growth. UDR (UDR) gained after boosting its NOI and FFO guidance as well for the third time this year. Camden Property (CPT) reports results this afternoon.
Single-Family Rental: Invitation Homes (INVH) rallied after reporting another stellar quarter and raising its full-year guidance across the board - just a few weeks after raising guidance during its REITweek presentation. INVH noted that occupancy rates climbed to record-highs at 98.3% and achieved 13.8% rent growth on new leases and renewal rent growth of 8.0%, the strongest quarter on record for each of these metrics. INVH boosted its full-year FFO growth outlook by 180 bps and now sees AFFO growth of 14.8% this year while also boosting its NOI outlook by 200 bps to 7.0%. American Homes (AMH) reports results next week.
Homebuilders: It was a busy 24 hours of homebuilder earnings as well. Meritage (MTH) soared more than 10% after reporting record-high margins and significantly raised its full-year revenue and EPS guidance, commenting that "Housing demand remains strong and we are still able to sell our homes soon after they are released." MDC Holdings (MDC) gained more than 3% after reporting a 54% jump in revenues and 14% increase in net orders. Century Communities (CCS) gained about 10% after reporting a similar 17% increase in order growth and a significant jump in margins to company-records. Taylor Morrison (TMHC) rallied more than 5% after reporting better-than-expected results despite continued capacity constraints. Beazer (BZH) reports after the bell today.
Data Center: "Beat and raise" hasn't been enough for technology REITs so far in Q2. Equinix (EQIX) dipped more than 5% despite raising its full-year FFO guidance by 50 bps to 9.6%. CoreSite (COR) declined despite raising its full-year FFO outlook by 170 bps to 4.7%. CyrusOne (CONE) slipped 3% despite a 130 bps hike to its FFO outlook to 2.6%. Leasing results from COR and CONE - the most closely watched earnings metric - were roughly in-line with estimates. Digital Realty (DLR) reports results this afternoon while QTS Realty (QTS) rounds out results next week.
Cell Tower: American Tower (AMT) - the largest REIT by market capitalization - was roughly flat today despite reporting another very strong quarter. AMT significantly boosted its full-year revenue growth guidance by 640 bps to 13.9% and its AFFO guidance by 260 bps to 11.6%. AMT's international business - which had been a drag over the past half-decade - appears poised to become a contributor to growth in the quarters ahead. AMT raised its organic tenanat billings "as a result of higher growth expectations internationally." These results were an interesting contrast with results from domestic-focused Crown Castle (CCI), which noted similarly solid overall trends but was pressured at the margins by a slow pace of small-cell deployment in the U.S.
Shopping Center: Shopping centers results have been impressive thus far as well with the five REITs to report thus far seeing a 17% increase in same-store NOI growth, a complete normalization in rent collection, and an impressive increase in their full-year FFO outlook. Kimco (KIM) rallied after raising its full-year FFO growth outlook to 12%, noting that its "operating fundamentals are returning to pre-pandemic levels at a faster pace than originally projected." Acadia (AKR) and Retail Opportunity (ROIC) each gained after reporting similary-strong NOI growth in Q2 and raising their full-year outlook. We'll hear results from Weingarten (WRI) after the close today.
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. Results have so far been as impressive as any REIT earnings season in recent memory with the vast majority of REITs significantly raising their full-year guidance. We'll publish our REIT Earnings Halftime Report later this evening on The REIT Forum.
Economic Data This Week
The jam-packed slate of housing data and earnings reports this week continues on Friday when 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. 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 report on Saturday morning.
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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.