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  • Alex Pettee, CFA

REITs Lead • Verdict Reached • Earnings Updates

Summary

  • U.S. equity markets declined Tuesday following a downbeat slate of corporate earnings results and ongoing COVID issues abroad while investors fear potential unrest from the verdict in the Chauvin trial this afternoon.

  • Adding to declines of 0.5% yesterday, the S&P 500 finished lower by 0.7% today while the Mid-Cap 400 declined by 1.5% and the Small-Cap 600 dipped 2.3%.

  • Real estate equities were leaders again today following a strong start to REIT earnings season. The broad-based Equity REIT Index finished higher by 0.8% with 11-of-19 property sectors in positive-territory.

  • Manufactured Housing REIT Equity Lifestyle (ELS) gained after reporting another stellar beat-and-raise quarter. The company now sees full-year FFO growth of 9.7% - up from 6.5% last quarter.

  • Student Housing REIT American Campus (ACC) gained after reporting that it collected 97.3% of rent during Q1 and saw signs of acceleration in weekly preleasing velocity.

Real Estate Daily Recap

U.S. equity markets declined Tuesday following a downbeat slate of corporate earnings results and ongoing COVID issues abroad while investors fear potential unrest from the verdict in the Chauvin trial this afternoon. Adding to declines of 0.5% yesterday, the S&P 500 ETF (SPY) finished lower by 0.7% today while the Mid-Cap 400 (MDY) declined by 1.5% and the Small-Cap 600 (SLY) dipped 2.3%. Real estate equities were leaders again today following a strong start to REIT earnings season. The broad-based Equity REIT ETFs (VNQ) finished higher by 0.8% today with 11-of-19 property sectors in positive territory while Mortgage REITs (REM) declined by 0.8%.

Reopening-sensitive segments were generally under pressure today following weaker-than-expected results from United Airlines (UAL). Four of the eleven GICS equity sectors finished higher on the day, led to the upside by the yield-sensitive sectors including Utilities (XLU), Real Estate (XLRE), and Consumer Staples (XLP) as the 10-Year Treasury Yield retreated by 4 basis points to close at 1.56% today. Within the Hoya Capital Housing Index, a strong day from Residential REITs was offset by pressure on the single-family homebuilders ahead of home sales data later this week.

Commercial Equity REITs

Just a few weeks after the final REITs reported Q4 earnings results, we've already begun Q1 real estate earnings season. Prologis (PLD) kicked off earnings season yesterday morning and we heard results from American Campus (ACC) and Equity Lifestyle (ELS) yesterday afternoon. Tomorrow, we'll hear results from industrial REITs Rexford (REXR) and First Industrial (FR), office REITs SL Green (SLG) and Brandywine (BDN), and cell tower REIT Crown Castle (CCI). Gear up for a frenetic month of newsflow as over the next four weeks, we'll hear results from more than 175 equity REITs, 40 equity REITs, and dozens of housing industry companies.

Today, we published Industrial REITs: Sorry, Out of Stock. The coronavirus pandemic has exposed the fragility of global supply chains. Demand for industrial real estate space remains insatiable as businesses scramble to invest in logistics resiliency. Order delays and bottlenecks have worsened amid the global economic reopenings, frustrating both businesses and consumers alike. Goods-selling businesses report historically low inventory-to-sales levels. The "hub of e-commerce" and the hottest property sector of the last half-decade, industrial REITs recorded the strongest earnings and dividend growth of any real estate sector in 2020. Stellar fundamentals rarely come cheap and industrial REITs are priced for perfection.

Manufactured Housing: Equity Lifestyle (ELS) gained 1.0% today after reporting another stellar beat-and-raise quarter. The company now sees full-year NOI growth of 5.3% - up from 3.8% last quarter. Additionally, ELS boosted its full-year guidance for FFO growth to 9.7% - up from 6.5% last quarter. The company sees continued strong rental rate growth of 4.2% and 4.4% at its Core Manufactured Housing parks and its Core RV Parks, respectively. It also noted that it has continued to invest in its newest asset class - marinas - with the acquisition of a portfolio of 11 marinas, containing 3,986 slips and 181 RV sites in the Sunbelt region.

Student Housing: American Campus Communities (ACC) gained 1.4% today after reporting better-than-expected results yesterday afternoon. ACC noted that it collected 97.3% of rent during Q1, but still recorded same-store net operating income declines of -11.0% year-over-year as occupancy rates remain depressed from the pandemic. ACC provided guidance for Q2 that was in line with estimates and commented that it has begun to see an acceleration in weekly preleasing velocity. Asking rental rates for its portfolio remain in line or slightly above a year ago and the company is "cautiously optimistic" that occupancy levels this fall will increase, but doesn't expect to return to historical occupancy levels for this coming school year.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by -0.8% today and are now lower by -2.4% on the week. Commercial mREITs were lower by -0.9% today and are now lower by 2.3% this week. Mortgage REIT earnings season is slated to kick off next Monday with results from KKR Real Estate (KREF), AGNC Investment (AGNC), and Tremont Mortgage (TRMT).

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by -0.25% today, on average, but outperformed their respective common stock issues by an average of 0.78%. So far in 2021, REIT Preferred stocks are higher by 6.18% on a price-return basis and the average REIT preferred currently pays a dividend yield of 6.30% and trades at a slight discount to par value.

Economic Data This Week

On Thursday, we'll see Existing Home Sales data which is expected to show that the sales rate was roughly even with last month as the mere lack of available homes to sell has emerged as a near-term constraint on further upside. On Friday, we'll see New Home Sales data which is expected to show a solid jump in March from the weather-affected February data, consistent with the trends observed this week with Housing Starts data. We'll also be watching the weekly MBA Mortgage data on Wednesday, Jobless Claims data on Thursday, and PMI data on Friday.

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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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