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  • Alex Pettee, CFA

REITs Lead • Incomes Surge • Strong Earnings

Summary

  • U.S. equity markets retreated from record-highs Friday amid ongoing COVID concerns in India and after Personal Income data showed a historic surge in March, reignited the discussion over inflationary pressures.

  • Ending the week roughly flat, the S&P 500 finished lower by 0.7% today while the Mid-Cap 400 declined by 1.3% and the Small-Cap 600 fell by 1.2%.

  • Real estate equities were leaders both today and on the week after a strong start to earnings season. The Equity REIT Index finished higher by 0.4% with 10-of-19 in positive-territory.

  • Personal Incomes surged by the most on record in March as the third wave of fiscal stimulus checks hit consumer's bank accounts. Incomes jumped 21.1% from last month and 29.0% from last year.

  • "Beat and Boost" has been the theme of REIT earnings season. Strong results from data center REIT Digital Realty (DLR) and storage REIT CubeSmart (CUBE) were highlights of the past 24 hours of REIT earnings.

Real Estate Daily Recap

U.S. equity markets retreated from record-highs Friday amid ongoing COVID concerns in India and after Personal Income data showed a historic surge in March, reignited the discussion over inflationary pressures. Ending the week roughly flat, the S&P 500 ETF (SPY) finished lower by 0.7% today while the Mid-Cap 400 (MDY) declined by 1.3% and the Small-Cap 600 (SLY) fell by 1.2%. Real estate equities were leaders both today and on the week after a strong start to 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 lower by 0.2%.

There was a bid for defensive and rate-sensitive sectors today despite the red-hot Personal Income data this morning as Utilities (XLU) and Real Estate (XLRE) were the top-performing GICS equity sectors. Homebuilders and the broader Hoya Capital Housing Index pulled back today but were among the leaders on the week following a strong slate of earnings results which showed continued momentum behind the housing sector. 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.

Personal Incomes surged by the most on record in March as the third wave of fiscal stimulus checks hit consumer's bank accounts. Incomes jumped 21.1% from last month and 29.0% from last year, which has led to emerging pockets of inflationary pressures. Of note, residential real estate has historically been one of the most effective "inflation hedges" and boosted by this surge in incomes, all of the major home price indexes have indeed exhibited a reacceleration in price appreciation over the last year, underscored this past week by the 12.0% year-over-year increase in the Case Shiller National Home Price Index and 11.9% on the 20-City Composite in February, which was the strongest rate of price appreciation since March 2014.

Commercial Equity REITs

Data Center: Digital Realty (DLR) finished higher by nearly 4% today after reporting solid results yesterday afternoon, salvaging what would have otherwise been a fairly disappointing quarter for the data center REIT sector. DLR reported that it signed $117m in incremental annual rents in Q1, which was ahead of expectations for around $100m. DLR also raised its full-year AFFO guidance and now sees growth of 4.9%, up from its prior outlook of 3.7%.

Storage: CubeSmart (CUBE) finished higher by more than 1% today after it continued the trend of impressive results for storage REITs. CUBE boosted guidance significantly across the board, and now sees same-store NOI growth of 4.8% and FFO growth of 6.4%, up from 4.7% in the prior outlook. These results followed similar strong results earlier this week from ExtraSpace (EXR) and Public Storage (PSA). Earlier this week in Storage REITs Urban Exodus Catalyzes Rebound, we discussed how the suburban housing boom and the desire for more space have driven a sharp rebound in self-storage demand.

Shopping Center: Kite Realty (KRG) declined by about 1% after reporting reports yesterday afternoon. KRG collected 97% of rents in Q4 - above the sector average of 94% - while also reporting that its same-store NOI growth improved sequentially to -2.9%, up from the -10.5% decline in the prior quarter. Importantly, KRG boosted its full-year FFO growth outlook and now sees growth of 0.8%, a slight rebound after its -22.3% plunge last year.

Apartment: Apartment Income (AIRC) and Camden Properties (CPT) were each higher today after reporting results yesterday afternoon. We’ve heard results from eight apartment REITs so far which have been strong across the board with 6 of 8 boosting full-year FFO growth guidance. Sunbelt-focused REITs saw blended rental rates rise 3.2% in Q1, accelerating to 4.6% in April. Coastal-focused REITs are still seeing negative rent growth with blended rates declining -5.6% in Q1 but improving to -4.5% in April.

Casinos: All 3 Casino REITs reported results over the last 24 hours. There were no major surprises as all three REITs continue to collect 100% of rents despite the continued depressed levels of activity at their properties. MGM Growth (MGP), for instance, reported that RevPAR at its Las Vegas hotels was down 62.7% year-over-year. VICI Properties (VICI) continues to be the strongest-performer with year-over-year AFFO/share growth of 23.7%, and it reiterated its guidance full-year which calls for AFFO/share growth of 12.5%.

Next week will be the busiest week of REIT earnings season with reports from nearly 100 REITs. We'll have full coverage and instant analysis throughout the week on The REIT Forum. As discussed in our REIT Earnings Preview, results from the handful of REITs that reported results have been impressive - particularly in the housing, logistics, and real estate technology sectors.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.4% today and ended the week with gains of 2.1%. Commercial mREITs finished lower by 0.7% today but ended the week higher by 0.4%. Orchid Island (ORC) gained nearly 1% today after reporting that its Book Value Per Share ("BVPS") declined by nearly 10% to $4.94 due to “the substantial move in the market and the increase in rates" which negatively impacted the company's hedging portfolio. These results were consistent with ORC's preliminary report in mid-April.

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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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