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  • Alex Pettee, CFA

Tech Wreck • REIT Earnings Updates • Fed Ahead

  • U.S. equity markets plunged Friday as downbeat earnings result from Amazon dragged technology stocks deeper into "bear market" territory while economic data this week raised further concerns about emerging stagflation.

  • Ending a choppy week with the worst one-day declines since 2022, the S&P 500 plunged 3.6% today while the tech-heavy Nasdaq 100 dipped more than 4%.

  • Real estate equities snapped a stretch of outperformance with broad-based declines today - particularly from the high-flying industrial and storage sectors despite very strong earnings this week.

  • Apartment REIT Camden Property (CPT) was among the outperformers today after reporting stellar results and raising its full-year FFO growth outlook by 500 basis points to 20.8% and raised its NOI growth outlook by 180 basis points to 13.8%.

  • Mortgage REIT Redwood Trust (RWT) rallied more than 7% today after reporting that its Book Value Per Share ("BVPS") was essentially flat in Q1 - significantly better than expected.

Income Builder Daily Recap

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U.S. equity markets plunged Friday as downbeat earnings result from Amazon dragged technology stocks deeper into "bear market" territory while economic data this week raised further concerns about emerging stagflation. Ending a choppy week with the worst one-day declines since 2022, the S&P 500 plunged 3.6% today while the tech-heavy Nasdaq 100 dipped more than 4% and is now over 22% below its recent highs. Real estate equities snapped a stretch of outperformance with broad-based declines today - particularly from the high-flying industrial and storage sectors despite very strong earnings this week. The Equity REIT Index dipped 4.2% today with all 19 property sectors in negative territory while Mortgage REITs declined 2.7%.

All eleven GICS equity sectors were lower on the day, dragged on the downside by the Consumer Discretionary (XLE) sector resulting from a 14% dive from Amazon (AMZN) - its largest one-day decline in a decade. Ahead of the Federal Reserve's interest rate decision next week, PCE inflation data today failed to show a meaningful deceleration in price pressures despite the contraction in GDP in Q1. The 10-Year Treasury Yield rose modestly to 2.89% but the 2-Year Treasury Yield jumped roughly 10 basis points to 2.74%. 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 this weekend.

Real Estate Daily Recap

Today we published our REIT Earnings Halftime Report. We're approaching the halfway point of another newsworthy real estate earnings season with roughly 50 REITs representing 50% of the total market capitalization having reported results. Among the 41 REITs that provided full-year FFO guidance, 30 REITs (73%) raised their outlook - well above the historical guidance increase rate of 60%. Residential and industrial REITs have been the early upside standouts thus far as rents continue to soar by double-digit rates across these sectors amid a substantial and lingering demand/supply imbalance.

Apartment: Camden Property (CPT) was among the outperformers today after reporting stellar results and raising its full-year FFO growth outlook by 500 basis points to 20.8% and raised its NOI growth outlook by 180 basis points to 13.8%. CPT recorded blended leasing spreads of 14.4% in Q1 and in April driven by new lease rent growth of nearly 16%. Seven of the eight major apartment REITs have now reported results - which have been even more impressive than our high expectations - confirming that rent growth continues to soar by double-digit rates in early 2022 with few signs of moderation.

Shopping Center: We've heard results from four of the 16 shopping center REITs, all four of which raised their full-year FFO and NOI growth outlooks. Results from Kite Realty (KRG) - which was among the best-performers today - have been most impressive with a 330 basis point increase in its full-year FFO growth outlook to 18.0% - the strongest in the sector. Earlier in the week, Kimco (KIM) also reported very strong results and significantly raised its full-year FFO growth outlook to 8.8% - up 280 basis points from its prior guidance. KIM noted that it increased its pro-rata portfolio occupancy by 30 basis points sequentially to 94.7%, representing the highest sequential occupancy increase in a first quarter in over 10 years.

Data Center: Digital Realty (DLR) maintained its guidance which calls for FFO growth of 4.9%, but did record its highest quarter ever for new and expansion leasing activity, signing leases representing 167M of annualized GAAP rental revenue. We've heard results from three of the four data center REITs and so far, only Equinix (EQIX) has raised its full-year outlook earlier in the week, reporting strong results and raising its full-year AFFO growth outlook to 7.2%, up 20 basis points from its prior outlook driven by "the best net booking performance in our history, fueled by strong demand across all three regions, robust net pricing actions, and near-record low churn."

Last week, we published our Real Estate Earnings Preview which discussed the major themes and metrics we'll be watching across each of the real estate property sectors this earnings season. Despite the historic surge in interest rates over the past quarter driven by expectations of Fed monetary tightening, REITs enter the first-quarter earnings season with some momentum at their backs. Having lagged for most of this year, the broad-based Equity REIT Index jumped ahead of the S&P 500 on a year-to-date performance basis in early April following several weeks of outperformance.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mREITs held up rather well today amid the broader market selloff. Redwood Trust (RWT) rallied more than 7% today after reporting that its Book Value Per Share ("BVPS") was essentially flat in Q1 - significantly better than expected. Orchid Island (ORC) - perhaps the most "troubled" mREIT in the sector - finished lower by about 2% after it reported a 23% BVPS decline in Q1 which was not as catastrophic as some feared. Ladder Capital (LADR), however, dipped 6% after reporting that its BVPS declined by roughly 2% in Q1 - slightly below consensus estimates.

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.

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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.

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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