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  • Alex Pettee, CFA

Tech Layoffs • REIT Earnings • Jobs Day Ahead

  • U.S. equity markets slumped again Thursday as investors digested another "jumbo" rate hike while a handful of corporations announced layoffs or hiring freezes ahead of the jobs report on Friday.

  • Pulling back for a fourth-day to extend its weekly declines to nearly 5%, the S&P 500 declined 1.1% while the tech-heavy Nasdaq dipped 2.0%- now lower by 7% this week.

  • Real estate equities were among the better-performers today following a strong slate of earnings results from retail and technology REITs. Equity REITs finished flat while Mortgage REITs declined 2.4%.

  • Data center REIT Equinix (EQIX) rallied more than 6% after reporting strong results and raising its full-year 2022 outlook driven by a sixth consecutive quarter of record leasing activity and strong pricing trends.

  • Cannabis REIT Innovative Industrial (IIPR surged more than 7% after reporting that rent collection issues remain limited to two troubled tenants and that it was already able to re-lease one of the former Kings Garden facilities.

 

Income Builder Daily Recap

U.S. equity markets slumped again Thursday as investors digested another "jumbo" Federal Reserve rate hike while a handful of corporations announced layoffs or hiring freezes ahead of a critical employment report on Friday. Pulling back for a fourth day to extend its weekly declines to nearly 5%, the S&P 500 declined 1.1% today while the tech-heavy Nasdaq 100 dipped 2.0% - extending its weekly decline to over 7%. Real estate equities were among the better performers today following a strong slate of earnings results from retail and technology REITs. The Equity REIT Index finished roughly flat today with 5-of-18 property sectors in positive territory while the Mortgage REIT Index declined 2.4%.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Cannabis: Innovative Industrial (IIPR) - a perennial outperform that has been slammed this year on concerns over tenant health - rallied more than 7% after reporting better-than-expected results and noting that rent collection issues remain limited to two troubled tenants - Kings Garden and Vertical. IIPR noted that it has collected 97% of its rent so far this year with the Kings Garden defaults in July responsible for the majority of that 3% of uncollected rent. Encouragingly, IIPR reported that it signed a Letter of Intent for a long-term lease at one of the properties that was formerly leased to Kings Garden in "just over a month of marketing the property."

Data Center: Equinix (EQIX) - which we own in the REIT Dividend Growth Portfolio - rallied more than 6% after reporting strong results and raising its full-year 2022 outlook driven by a sixth consecutive quarter of record leasing activity and strong pricing trends. Of note, EQIX reported same-store revenue growth of 7% in Q3, continuing an acceleration in rent growth since early 2021. EQIX now sees full-year FFO growth of 7.7% (10.5% on a constant-currency basis) - up 100 basis points from last quarter.

Shopping Center: The strong earnings season for shopping center REITs continued over the past 24 hours with a trio of strong reports. Kite Realty (KRG) - which we recently identified as one of our three "Best Ideas in Real Estate" on the Income Builder Marketplace - advanced 2% after reporting very strong results and raising its full-year outlook. Driven by record leasing volume, KRG raised its full-year FFO growth outlook to 25.3% - up 330 basis points from last quarter. RPT Realty (RPT) rallied 4% after reporting similarly strong results and raising its full-year FFO and NOI outlook. Urban Edge (UE) finished roughly flat as disappointing leasing spread metrics offset a boost to its full-year outlook. We'll hear results this afternoon from Regency Centers (REG), Federal Realty (FRT), and Phillips Edison (PECO).

Net Lease: The solid earnings season for net lease REITs continued as well over the past 24 hours with 6 of the 8 REITs that provide guidance now having raised their full-year FFO targets. Realty Income (O) - the largest net lease REIT - finished higher by 1% after reporting solid results and raising its full-year FFO growth target by 12.3% - up 130 basis points from the prior quarter. Movie theater and experiential real estate owner EPR Properties (EPR) advanced about 1% after reporting continued progress in rent collection on deferred rent payments and raising its full-year FFO target. Small-Cap Global Net Lease (GNL) rallied 3% after reporting decent results highlighted by a strong quarter of leasing activity. Broadstone (BNL) finished lower by about 1% after reporting in-line results and maintaining its full-year outlook.

Mall: Results from mall REITs have shown that downward pressure on rents and occupancy rates may finally be subsidizing. Tanger Outlets (SKT) rallied more than 5% after reporting better-than-expected results and raising its full-year outlook, driven by its strongest quarter for rental rate spreads in a half-decade at 5.7% - its third straight quarter of positive spreads following a streak of eight straight quarters of negative growth\. Macerich (MAC) gained about 1% after reporting similar strength in occupancy rates and rental rate spreads, which offset a downward revision to its full-year FFO target. Encouragingly, MAC reported positive spreads of 3.3% - up from -6.6% in the prior quarter - its best quarter of leasing since the pandemic began.


Storage: The hit-and-miss earnings season for storage REITs continued over the past 24 hours. Life Storage (LSI) advanced about 1% after reporting strong results and boosting its full-year FFO growth target by 280 basis points to 27.0%, commenting that "fundamentals are very strong with occupancy remaining elevated from pre-pandemic seasonal levels.“ National Storage (NSA) declined about 4% after lowering its full-year FFO growth outlook by 70 basis points to 24.3%, noting that self-storage fundamentals "remain healthy" but "are moderating toward historical norms."

Healthcare: Global Medical (GMRE) rallied more than 3% after reporting better-than-expected results with AFFO rising about 4% from the same quarter last year. Omega Healthcare (OHI) finished higher by about 1% after reporting in-line results, noting that rent collection issues remain contained to several troubled tenants but that it is making "significant progress in working through our operator restructurings" Diversified Healthcare (DHC) plunged more than 12% after reporting disappointing results, underscored by a sharp dip in NOI in its senior housing segment which the company attributed to Hurricane Ian. We'll hear results this afternoon from Ventas (VTR).

Office: Today we published Office REITs: Work from Home Reckoning? Pressured by the painfully slow “return to the office” with daily utilization rates still 50% below pre-pandemic norms, Office REITs are the among worst-performing property sectors this year. Office leasing activity and REIT earnings results have been surprisingly resilient, but corporations won't pay for half-empty space indefinitely and have been leveraging softening market conditions to extract generous concessions. With labor markets still historically tight, employees are still dictating the terms of the "Work from Home" dynamic, especially in coastal markets with long commutes where WFH benefits outweigh costs. Counterintuitively, a recession could be a net positive for the typically pro-cyclical office sector as firms increasingly utilize office mandates as part of a workforce reduction strategy, driving utilization rates closer to pre-pandemic levels. Hudson Pacific (HPP) and Piedmont (PDM) each finished lower by about 2% after reporting mixed results while Orion (ONL) finished flat. We'll hear results this afternoon from Douglas Emmett (DEI).

Last Friday we published REIT Earnings Halftime Report. Solid results from REITs come amid an otherwise disappointing earnings season for the broader equity market as, per FactSet, just 48% of S&P 500 companies have boosted their outlook. In addition to the aforementioned reports, we'll hear results from nearly two dozen REITs this afternoon including residential REITs AvalonBay (AVB), Apartment Income (AIRC), and American Homes (AMH) along with hotel REITs Summit Hotels (INN), Diamondrock (DRH), and Services Property (SVC).

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were under pressure today amid a busy slate of earnings reports. On the upside today, Cherry Hill Mortgage (CHMI) rallied 3% after reporting that its Book Value Per Share ("BVPS") declined 10% in Q3 to $6.05 - less steep than its agency-focused peers. Invesco Mortgage (IVR) advanced 2% after reporting that its BVPS declined 20% in Q3 to $12.80 - essentially in line with estimates. On the downside, New York Mortgage (NYMT) finished lower by 1.5% after reporting that its BVPS dipped 10% to $3.65. Chimera (CIM) dipped nearly 9% after reporting that its BVPS declined 16% to $7.44 - the steepest among non-agency mREITs thus far. We'll hear results this afternoon from Hannon Armstrong (HASI), Great Ajax (AJX), ACRES Commercial (ACR), and Western Asset (WMC).

Economic Data This Week

The jam-packed week of economic data and corporate earnings concludes with the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of roughly 200k in October - which would be the smallest gain since December 2020 - and for the unemployment rate to tick higher to 3.60%. 'Good news is bad news' will likely be the theme of these reports as investors and the Fed look for signs of the long-awaited cooldown in job growth which has yet to fully materialize. Purchasing Managers' Index ("PMI") data will continue to be a major market focus - particularly in Europe and Asia - as recent reports have dipped below the breakeven 50-level.

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.

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