Debt Deadline • Data Center Boom? • REIT Dividend Hike
U.S. equity markets snapped a two-day skid Thursday as strong AI-fueled earnings results from chip maker Nvidia offset a continued uptick in benchmark interest rates amid the ongoing debt ceiling stalemate.
Following back-to-back declines of roughly 1%, the S&P 500 rebounded by 0.9% today, while the tech-heavy Nasdaq 100 rallied 2.4%. The Mid-Cap 400, Small-Cap 600, and Dow all finished lower.
Higher rates pressured real estate equities, which were among the laggards for a second day despite a lift from technology REITs. The Equity REIT Index posted fractional declines today.
Both data center REITs - Digital Realty (DLR) and Equinix (EQIX) - rallied more than 5% today after chip maker Nvidia (NVDA) reported blowout first-quarter results driven by strength in its data center business.
American Tower (AMT) raised its quarterly dividend by 1% to $1.57/share, becoming the 52nd REIT to raise its dividend this year, offset by 16 REIT dividend reductions.
Income Builder Daily Recap
U.S. equity markets snapped a two-day skid Thursday as strong AI-fueled earnings results from chip maker Nvidia offset a continued uptick in benchmark interest rates amid the ongoing debt ceiling stalemate. Following back-to-back declines of roughly 1%, the S&P 500 rebounded by 0.9% today, while the tech-heavy Nasdaq 100 rallied 2.4%. The Mid-Cap 400, Small-Cap 600, and Dow all finished lower on the session. A relatively strong slate of economic data and concern over a potential technical default lifted the 2-Year Treasury Yield and 10-Year Yield to their highest levels since early March. Higher rates pressured real estate equities, which were among the laggards for a second day despite a lift from technology REITs. The Equity REIT Index posted fractional declines today, with 14-of-18 property sectors in negative territory, while the Mortgage REIT Index declined 2.2%.
Real Estate Daily Recap
Best & Worst Performance Today Across the REIT Sector
Data Centers: Both data center REITs - Digital Realty (DLR) and Equinix (EQIX) - rallied more than 5% today after chip maker Nvidia (NVDA) reported blowout first-quarter results driven by strength in its data center business. Nvidia - which surged more than 20% today to bring its market cap to the cusp of $1 trillion - said that it is significantly increasing its supply of data center chips to meet "surging" demand and commented, "a trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process." In our REIT Earnings Recap, we noted that data center REITs have seen improved pricing power in recent quarters after a three-year stretch of lackluster rent growth. Equinix (EQIX) raised its full-year revenue and FFO outlook while also recording its strongest quarter of same-store revenue growth on record at 11%. Digital Realty (DLR) reported similarly strong pricing trends, with renewal rent spreads rising 4.5% - its strongest quarter since 2019.
Cell Tower: American Tower (AMT) raised its quarterly dividend by 1% to $1.57/share, becoming the 52nd REIT to raise its dividend this year compared to 16 REIT dividend reductions. Notably, the one-cent increase for the second quarter was below AMT's historical average increase of two cents. A trio of office REITs maintained their dividends despite speculation that cuts may be imminent. Brandywine Realty (BDN) maintained its quarterly dividend at $0.19/share, representing a dividend yield of 20.4%. Kilroy Realty (KRC) maintained its dividend at $0.54/share, representing a dividend yield of 8.0%. Douglas Emmett (DEI) maintained its dividend at $0.19/share, representing a dividend yield of 6.7%. Apartment REIT AvalonBay (AVB) and data center REIT Digital Realty (DLR) also held their dividends steady.
Hotels: Yesterday, we published Hotel REITs: The Pandemic Is Over, Now What? Despite lingering recession concerns, hotel REITs are pacing for a second-straight year of outperformance after punishing early-pandemic declines, buoyed by steady post-pandemic operating improvement and the long-awaited return of dividends. The final pandemic-era travel restrictions were lifted last week with the ending of the vaccine mandate for foreign arrivals. International travel demand should provide a healthy tailwind over the coming quarters. Domestic travel recovered to 100% of pre-pandemic levels in early 2023 but has plateaued since February. Business and group demand has marginally improved, offsetting some moderation in leisure demand. The latest data from STR showed that the national average occupancy rate improved to 64.4% in April - just 1% below 2019 levels - but Average Daily Rates ("ADR") and Revenue Per Available Room ("RevPAR") growth slowed rather considerably. ADR rose by 3.4% in April - down from 19.1% in March. RevPAR increased 1.9%, down from 14.4% in March.
Additional Headlines from The Daily REITBeat on Income Builder
Physicians Realty (DOC) closed on a $400 Million Term Loan maturing May 2028 along with a swap agreement to fix the variable component of the Term Loan at 3.59% for the duration of the borrowing
Four Corners Property Trust (FCPT) announced an $85M deal to acquire up to 14 Darden restaurant properties located in Tennessee (7), Indiana (3), Kentucky (3), and Ohio (1), which will pay an initial cash rent of $5.35M with annual rent increases of 1.5% under a net lease with Darden
Mortgage REIT Daily Recap
Mortgage REITs finished lower for a second session today, with residential mREITs slipping 2.4% while commercial mREITs declined by 1.9%. Ellington Financial (EFC) declined by 2% after announcing that its estimated book value per share was $14.89 as of April 30, down about 1% from the $15.10/share at the end of Q1. EFC also maintained its quarterly dividend at $0.15/share, representing a dividend yield of 14.2%. As noted in our Earnings Recap, residential mREITs reported an average decline in BVPS of 1.9% in Q1, while commercial mREITs reported a 1.8% average decline. Within the residential mREIT sector, credit-focused mREITs fared better in Q1 - reporting a slight increase in their Book Value Per Share ("BVPS") while agency-focused REITs reported an average decline in their BVPS of about 5% in Q1. Dividend coverage was stronger for commercial mREITs with about 75% of commercial mREITs covering their dividend with Q1 adjusted EPS while just 50% of residential mREITs covered their dividend.
Economic Data This Week
The busy week of economic data concludes on Friday with the PCE Price Index - the Fed's preferred gauge of inflation - which is expected to show a continued moderation in price pressures. In the same report, we'll also be looking at Personal Income and Personal Spending data for April, a key read on the state of the U.S. consumer.
Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds ("ETFs") listed on the NYSE. In addition to any long positions listed, Hoya Capital is long all components in the Hoya Capital Housing Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.
Hoya Capital Research & Index Innovations (“Hoya Capital”) is an affiliate of Hoya Capital Real Estate, a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations provides non-advisory services including market commentary, research, and index administration focused on publicly traded securities in the real estate industry.
This published commentary is for informational and educational purposes only. Nothing on this site nor any commentary published by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. This commentary is impersonal and should not be considered a recommendation that any particular security, portfolio of securities, or investment strategy is suitable for any specific individual, nor should it be viewed as a solicitation or offer for any advisory service offered by Hoya Capital Real Estate. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.
The views and opinions in all published commentary are as of the date of publication and are subject to change without notice. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Any market data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any outlook made in this commentary will be realized.
Readers should understand that investing involves risk and loss of principal is possible. Investments in real estate companies and/or housing industry companies involve unique risks, as do investments in ETFs. The information presented does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes.
Hoya Capital Real Estate and Hoya Capital Research & Index Innovations have no business relationship with any company discussed or mentioned and never receives compensation from any company discussed or mentioned. Hoya Capital Real Estate, its affiliates, and/or its clients and/or its employees may hold positions in securities or funds discussed on this website and our published commentary. A complete list of holdings and additional important disclosures is available at www.HoyaCapital.com.