REIT Rally • Healthcare M&A • Earnings Updates

  • U.S. equity markets advanced Tuesday while long-term Treasury yields pulled back from three-year highs following a busy slate of earnings reports ahead of a critical Federal Reserve interest rate decision.
  • Real estate equities were leaders today following a strong slate of earnings reports and M&A news. The Equity REIT Index advanced 1% today with 13-of-19 property sectors higher while Mortgage REITs surged nearly 4%.
  • Healthcare Realty surged 8% after reports that Welltower made a $5 billion offer for the medical office building REIT earlier this year after agreeing to merge with Healthcare Trust of America.
  • Mortgage REIT New Residential (NRZ) rallied 10% after reporting strong results this morning with its Book Value Per Share ("BVPS") gaining 10% in Q1 as its portfolio of Servicing & MSR Related Investments has benefited from the rising rate environment.
  • Omega Healthcare (OHI) - which had been under pressure over the last month after warning about further rent collection issues from struggling SNF operators - surged more than 10% after reporting moderate success in managing these issues while occupancy rates recovered.

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U.S. equity markets advanced Tuesday while long-term Treasury yields pulled back from three-year highs following a busy slate of earnings reports ahead of a critical Federal Reserve interest rate decision on Wednesday afternoon. Gaining for the second-straight day following its worst one-day decline since 2020, the S&P 500 advanced 0.5% while the Mid-Cap 400 and Small-Cap 600 each advanced 1%. Real estate equities were leaders today following a very strong slate of earnings reports and M&A news. The Equity REIT Index advanced 1.2% today with 13-of-19 property sectors in positive territory while Mortgage REITs rallied nearly 4%.

Ahead of the FOMC rate decision on Wednesday afternoon, the 10-Year Treasury Yield declined 4 basis points to 2.96% today while the 2-Year Treasury Yield finished modestly higher at 2.77%. Eight of the eleven GICS equity sectors advanced today led to the upside by the Energy (XLE) and Real Estate (XLRE) sectors while Homebuilders and the broader Hoya Capital Housing Index were also among the leaders as earnings results across the sector continue to show resilient housing market demand across rental and ownership markets despite the historic surge in mortgage rates this year.

Real Estate Daily Recap

Healthcare: Omega Healthcare (OHI) - which had been under pressure over the last month after warning about further rent collection issues from struggling SNF operators - surged more than 10% after reporting moderate success in managing these issues while occupancy rates at its facilities trended higher throughout the quarter. Elsewhere in the sector, Healthcare Realty (HR) surged 8% after a report that Welltower (WELL) made a $5 billion all-cash offer for the medical office building REIT earlier this year after the company had agreed to merge with Healthcare Trust of America (HTA) and remains interested. We'll hear results this afternoon from Healthpeak (PEAK), Community Healthcare (CHCT), and Diversified Healthcare (DHC).

Shopping Center: The strong earnings season continued for shopping center REITs with a trio of strong results over the past 24 hours. InvenTrust (IVT) rallied more than 4% after it raised its full-year FFO growth outlook to 9.6% - up 40 basis points from its prior outlook - and its same-store NOI outlook ("SSNOI") by 70bps to 4.5%. Brixmor (BRX) advanced after raising its FFO growth outlook by 50 basis points to 9.4% and its SSNOI outlook to 3.8% from 3.0%. Acadia Realty (AKR) gained 1% after revising its full-year FFO outlook higher by 440bps to 2.8%. We'll hear the result this afternoon from Regency Centers (REG) and Whitestone REIT (WSR).

Net Lease: National Retail (NNN) - one of our largest positions in the REIT Focused Income Portfolio - rallied 3% after reporting very strong results and significantly raising its full-year outlook. NNN boosted its full-year Core FFO growth outlook to 6.5% - up 280 basis points from last quarter and commented that its "position in the triple net market, combined with our robust relationship tenant program, sets us up for consistent per share growth on a multi-year basis." We'll hear results this afternoon from Spirit Realty (SRC), Agree Realty (ADC), and Broadstone (BNL).

Apartment: Apartment Income (AIRC) - which we own in the REIT Focused Income Portfolio - finished higher after reporting accelerating rent growth and boosting its full-year outlook for NOI and FFO. AIRC now sees FFO growth of 12.6% this year - up 50bps from last quarter - and SSNOI growth of 12.5% - also higher by 50bps. Notably, AIRC noted that rent growth continued to accelerate into April with rents on new leases breaching above the 20% mark for the month - one of three apartment REITs to record incredible 20%+ rent growth on new leases for April. Centerspace (CSR) slumped after reporting more muted rent growth in its Midwest markets and maintaining its full-year outlook. We'll hear results this afternoon from Independence Realty (IRT).

Student Housing: Today we published our final Student Housing REIT sector report. American Campus (ACC) - the first of three student housing REITs and last one still publicly traded - was scooped-up last month by Blackstone (BX) - one of its five major REIT acquisitions since June to feed its fledging non-traded REIT business, BREIT. We discussed how BREIT has grown into a $100B behemoth in less than five years despite its high fee structure. The $100 in gross asset value - the vast majority of which has been acquired over the past five years alone - places BREIT among the five largest REITS. Student housing has seen a swift recovery and brightening outlook over the past twelve months as the effects of soaring rents have more-than-offset ongoing COVID issues and longer-term enrollment headwinds.

Office: Boston Properties (BXP) gained 3% after raising its full-year FFO growth outlook to 13.6% - up 120 bps from its prior outlook - while maintaining its outlook for SSNOI growth of 5.5%. Vornado (VNO) advanced 2% after reporting continued recovery in its core NYC market, commenting that "leasing conditions across Manhattan remain strong. Deal activity is robust while asking rents and tenant concessions have stabilized." Armada Hoffler (AHH) advanced 1% after the diversified office, retail, and multifamily REIT boosted its full-year FFO growth outlook to 9.3% - up from its prior guidance calling for 5.6% growth. Easterly Government (DEA) advanced 3% after maintaining its full-year outlook. We'll hear results this afternoon from Douglas Emmett (DEI) and JBG Smith (JBGS).

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mREITs were broadly higher today after a wave of better-than-expected earnings results as the damage in book values from the challenging rate environment has been more contained than feared. New Residential (NRZ) rallied 10% after reporting strong results this morning with its Book Value Per Share ("BVPS") gaining 10% in Q1 as its portfolio of Servicing & MSR Related Investments has benefited from the rising rate environment. AGNC Investment (AGNC) - which owns a more traditional MSB portfolio - rallied more than 6% after it reported that its BVPS declined 16.7% in Q1 to $13.12 per share - not as weak as feared. Ellington Residential (EARN) also gained 3% despite reducing its dividend by 20% while reporting a 13.8% BVPS decline in Q1.

Economic Data This Week

Employment data highlights another busy week of economic data 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 380k in April following three-straight months of stronger-than-expected job growth while the unemployment rate is expected to decline to 3.5% from 3.6% in the prior month. The focus will be on the Fed this week with the FOMC Interest Rate Decision on Wednesday in which the committee is expected to initiate a "double rate hike" of 50 basis points this meeting and market pricing implies a total of 250 basis points by year-end.

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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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