• Alex Pettee, CFA

Tech Wreck • REITs Lead • Student Housing Strength

Summary

  • U.S. equity markets were broadly lower Monday - pressured by weakness among large-cap technology stocks - as investors remain concerned over soaring energy price, moderating growth, and significant political uncertainty.

  • Ending the day 5% below its recent record-highs, the S&P 500 declined 1.3% today while Mid-Caps finished lower by 0.5% and Small-Caps slipped 0.3%. The tech-heavy Nasdaq 100 dipped 2.1%.

  • Real estate equities were outperformers today as the Equity REIT Index finished fractionally higher with 11-of-19 property sectors in positive territory while Mortgage REITs climbed 0.2%.

  • American Campus Communities (ACC) rallied after boosting its full-year outlook and commented that its seeing "substantial tailwinds" and expects the sector to fully-recover from COVID during the current quarter.

  • Employment data highlights the economic calendar in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday.

Real Estate Daily Recap

U.S. equity markets were broadly lower Monday - pressured by weakness among large-cap technology stocks - as investors remain concerned over soaring energy price, moderating growth, and significant political uncertainty. Ending the day 5% below its recent record-highs, the S&P 500 declined 1.3% today while the Mid-Cap 400 finished lower by 0.5% while the Small-Cap 600 slipped 0.3%. The tech-heavy Nasdaq 100 slid 2.1% and is now nearly 8% below its recent highs. Real estate equities were outperformers today as the Equity REIT Index finished fractionally higher with 11-of-19 property sectors in positive territory while Mortgage REITs climbed 0.2%.

As discussed in our Real Estate Weekly Outlook, recent economic data has indicated that inflationary pressures may be less "transitory" than initially forecast as soaring energy prices and rents briefly pushed the 10-Year Treasury Yield to its highest levels since June before pulling back below 1.50% today. Nine of the eleven GICS equity sectors were lower today, dragged on the downside by the Technology (XLK) and Communications (XLC) sectors amid a world-wide platform outage at Facebook (FB). Energy (XLE), Real Estate (XLRE), along with homebuilders and the broader Hoya Capital Housing Index were among the leaders today as investors have turned to real assets to hedge inflationary pressures.

Employment data highlights the economic calendar in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of 460k in September follow last month's disappointing employment growth of 235k. The expiration of federal supplemental unemployment benefits - and the return of in-person education for most school districts - are expected to help pull many sidelined workers back into the labor-force, but these effects may have been offset by a broader slowdown in economic activity due to the "fourth wave" of the pandemic.

Equity REITs

Student Housing: American Campus Communities (ACC) jumped more than 3% today after it boosted its full-year FFO guidance due to a successful completion of the Fall 2021 lease-up and robust occupancy and rental revenue growth. ACC now expects FFOM per share of $2.08 at the midpoint, implying a growth rate of 5.1% this year, up 410 basis points from its prior FFO growth outlook. CEO Bill Bayless commented, "Our sector is experiencing substantial tailwinds and appears to have almost entirely recovered from the impacts of COVID" and sees NOI returning to pre-pandemic levels during the current quarter, which the company expects will translate into "significant" earnings growth next year.

Office: Sunbelt-focused Highwoods Properties (HIW) was among the leaders today after announcing that it has sold two non-core office buildings in Richmond and Memphis for $119.7M. HIW has sold several non-core properties as it repositions part of its portfolio following its agreement to acquire nearly $1B of office assets from fellow REIT Preferred Apartment Communities (APTS) back in April. Last week we published Office REITs: The New Normal, we discussed that while WFH headwinds will persist, the office REIT outlook has brightened in recent months - particularly for REITs focused on more business-friendly Sunbelt regions - following solid earnings results and favorable private-market pricing.

Manufactured Housing: This afternoon, we'll publish our updated analysis on the red-hot manufactured housing sector, which has continued to be a primary beneficiary of the intensifying shortage of affordable housing. Manufactured Housing REITs reported incredible same-store NOI growth of nearly 20% in Q2 driven by resurgent demand in its transient RV facilities - many of which were temporarily closed during the comparable Q2 of 2020. The two major MH REITs - Equity Lifestyle (ELS) and Sun Communities (SUI) - each significantly boosted their guidance last quarter and now see NOI and FFO growth of 9.1% and 18.9%, respectively, at the average midpoint of their ranges. MH REITs' amplified focus on analogous asset classes - RV parks and marinas - was perfectly-timed ahead of the coronavirus pandemic.

Mortgage REITs

Per our Mortgage REIT Tracker, mREITs held up rather well today as residential mREITs finished higher by 0.2% while commercial mREITs slipped 0.5%. On an otherwise slow day of newsflow, cannabis-focused AFG Gamma (AFCG) - which debuted on the public markets earlier this year - announced that it closed on total new commitments of $119.2 million during the quarter. Boosted by 24 dividend hikes across the sector this year, - including from AFCG - the average residential mREIT now pays a dividend yield of 9.1% while the average commercial mREIT pays a dividend yield of 7.0%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.39% today, on average, but have produced total returns this year of roughly 15%. Over in the bond markets today, American Finance (AFIN) announced an $815M extended credit facility - up from its existing $540M facility - which matures in 4.5 years and has a margin that is 15 basis points lower than the prior facility.

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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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