• Alex Pettee, CFA

Worker Shortage • Housing Shortage • Stocks At Records

Summary

  • U.S. equity markets climbed to fresh record-highs Friday despite a disappointing employment report that provided evidence that pandemic-related unemployment benefits may be holding back the recovery.

  • Ending the week with gains of 1.2%, the S&P 500 finished higher by 0.7% today while the Mid-Cap 400 gained 1.1% and the Small-Cap 600 climbed 0.9%.

  • Real estate equities delivered a strong close to an otherwise negative week as the broad-based Equity REIT Index finished higher by 1.3% today with all 19 property sectors in positive-territory.

  • The U.S. economy added just 266k jobs in April, well below the estimates of around 1,000,000 which some economists suggest is linked to supplemental unemployment benefits which - in some cases - result in higher pay than the employment alternative.

  • American Homes (AMH) finished higher after the single-family rental REIT reported strong results and boosted full-year guidance. Mirroring the surge in suburban home values, AMH reported stellar 10.0% rental rate growth on new leases, the strongest on record.

Real Estate Daily Recap

U.S. equity markets climbed to fresh record-highs Friday despite a disappointing employment report that provided evidence that pandemic-related unemployment benefits may be holding back the recovery. Ending the week with gains of 1.2%, the S&P 500 ETF (SPY) finished higher by 0.7% today while the Mid-Cap 400 (MDY) gained 1.1% and the Small-Cap 600 (SLY) climbed 0.9%. Real estate equities delivered a strong close to an otherwise negative week as the broad-based Equity REIT ETFs (VNQ) finished higher by 1.3% today with all 19 property sectors in positive territory while Mortgage REITs (REM) gained 0.7%.

Good News is Bad News, again? The equity market rally came despite a downbeat BLS jobs report which was the largest miss relative to consensus estimates since 1998. After initially retreating below 1.50%, the 10-Year Treasury Yield rebounded back to 1.58% suggesting that investors may be discounting the weak report as a one-off anomaly while other indicators continue to point to continued strength in the labor markets. Ten of the eleven GICS equity sectors finished higher on the day while the Hoya Capital Housing Index climbed to fresh records as well following strong results from single family rental REIT American Homes (AMH).

The Bureau of Labor Statistics reported that the U.S. economy added just 266k jobs in April - well below the estimates of around 1,000,000 - and revisions to the prior two months subtracted another 78k from the total employment level. The report provided evidence to commentary on earnings reports that companies are having difficulty hiring both skilled and unskilled workers which some economists suggest is linked to supplemental pandemic-related unemployment benefits which - in some cases - result in higher pay than the employment alternative. The "headline" unemployment rate ticked higher to 6.1%. Leisure and hospitality accounted for 331k job gains while professional and business services saw job losses of 79k.

Commercial Equity REITs

Earlier this week, we published our REIT Earnings Halftime Report. The major themes this quarter have been "Beat and Boost" and the revival of long-dormant "Animal Spirits." Nearly 90% of REITs have topped consensus earnings estimates. Of the 75 REITs and homebuilders that provide full-year guidance, nearly two-thirds have raised their full-year estimates. Positive surprises thus far in Q1 have been primarily in the residential REIT sectors where self-storage, manufactured housing, and sunbelt-focused apartment REITs have reported stellar results. Below is the updated Earnings Scorecard.

Single Family Rental: American Homes (AMH) finished higher by nearly 2% after reporting strong Q1 results and boosting its full-year NOI and FFO guidance. AMH now sees FFO growth of 9.5% at the midpoint of its range, up from its prior outlook for 7.8% growth. AMH boosted its full-year same-store NOI to 4.0% from 3.5%. Mirroring the surge in suburban home values, SFR REIT reported stellar 10.0% rental rate growth on new leases, which accelerated further in April to over 11% while occupancy rates remain near record-highs at 97%. Renewal rates rose 5.1% in Q1, combining for a blended change in rents of 6.9% - the strongest quarter on record for the REIT.

Hotels: Apple Hospitality (APLE) rallied after reporting relatively strong Q1 results, noting that its occupancy rate for the quarter improved to nearly 56%, the best among hotel REITs. APLE - one of the few REITs that focus on the economy segment of the market - also noted that was cash flow positive in Q1. CorePoint Lodging (CPLG) jumped after reporting that its occupancy rate improved to nearly 53% in Q1 - up from 47% in the prior quarter - which rose to 63% by April. Park Hotels (PK) jumped as well after reporting that its occupancy rate improved 6 percentage points to 26% in Q1. Diamondrock (DRH) gained after reporting 27% occupancy in Q1, up 5 percentage points from Q4. On average, hotel REITs reported a 2.4%

Shopping Center: Regency Centers (REG) rallied after reporting strong sequential improvement in same-store NOI and significantly boosting its full-year outlook. REG now sees 14.6% FFO growth this year - tops in the sector - which was up from its prior outlook for 3.4% growth. Saul Centers (BFS) finished modestly lower after reporting a sequential deceleration in same-store NOI, but noted that it collected 96% of rents in Q1. Cedar Realty (CDR) finished modestly higher after reporting similar results as BFS, seeing a deceleration in same-store NOI but noting that it collected 96% of rents.

Healthcare: Ventas (VTR) finished higher after reporting that it has seen "emerging positive trends" in its senior housing operating portfolio - which remains the troubled spot in the healthcare sector. CareTrust (CTRE) gained after boosting its full-year FFO growth outlook to 5.0% from its prior outlook of 2.1%. The ten healthcare REITs that provide same-store NOI growth tell the story of the healthcare sector - stable performance in the MOB, SNF, and Hospital sub-sectors and strong performance in life sciences. For senior housing, these REITs are regretting the shift away from the net lease structure as the SHOP portfolios have seen a 50% plunge in NOI compared to the flat NOI in similar triple-net leased assets.

Industrial: Americold (COLD) finished higher by 1.5% after the cold storage operating reported results in line with estimates and maintained its full-year NOI and FFO guidance. COLD sees FFO growth of 9.3% this year driven by same-store NOI growth of 4.5%. Plymouth (PLYM) gained more than 2% despite lowering its same-store NOI guidance and maintained its full-year FFO guidance. PLYM now sees NOI growth of 2.8%, down slightly from its prior 3.2% outlook, and still expects its full-year FFO to decline by 7.5%. Lexington (LXP) rallied 3.5% after boosting its full-year FFO guidance, but it too still sees a 2% decline in FFO.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.5% today but ended the week off by 0.3%. Commercial mREITs finished higher by 1.0% to end the week with gains of 0.4%. Three mortgage REITs boosted their dividends over the last 24 hours - Arbor Realty (ABR), Ellington Financial (EFC), and Great Ajax (AJX) - all of which were among the leaders on the day.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.33% today, on average, but underperformed their respective common stock issues by an average of 1.12%. So far in 2021, REIT Preferred stocks are higher by 7.50% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.25% and trades at a slight premium to par value.

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 report on Saturday morning.

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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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