REIT Earnings • West Coast Weakness • Cellular Strength
U.S. equity markets finished mostly lower Tuesday as investors analyzed a busy slate of corporate earnings results while benchmark interest rates marched higher despite a disappointing slate of economic data.
Erasing modest gains on Monday, the S&P 500 slipped 0.3% today, but the Dow Jones Industrial Average gained 71 points, advancing for the 16th time in 17 sessions.
Real estate equities were mixed today amid the busiest 48-hour stretch of second-quarter earnings reports. The Equity REIT Index slipped 0.2% today, with 6-of-18 property sectors finishing in positive territory.
After a strong start to office REIT earnings season, results over the past 24 hours have tempered the optimism a bit, particularly for West Coast markets. Paramount Group (PGRE) plunged 8% after reporting very weak results and significantly lowering its full-year outlook.
Midwest-focused apartment REIT CenterSpace (CSR) surged 6% after reporting strong results and significantly raising its full-year outlook. Cell tower REIT SBA Communications (SBAC) rallied 4% after also raising its outlook.
Income Builder Daily Recap
U.S. equity markets finished mostly lower Tuesday as investors analyzed a busy slate of corporate earnings results while benchmark interest rates marched higher despite a disappointing slate of economic data this morning. Erasing modest gains on Monday, the S&P 500 slipped 0.3% today, but the Dow Jones Industrial Average gained 71 points, advancing for the 16th time in 17 sessions. Benchmark yields pushed higher despite a weak JOLTs print - the first major jobs report of the busy week - with job openings falling to the lowest-level since April 2021, while PMI data showed a worsening manufacturing slump. The 10-Year Treasury Yield jumped nine basis points to 4.05%, while the policy-sensitive 2-Year Yield rose three basis points to 4.91%. Real estate equities were mixed today amid the busiest 48-hour stretch of second-quarter earnings reports. The Equity REIT Index slipped 0.2% today, with 6-of-18 property sectors finishing in positive territory, while the Mortgage REIT Index slipped 1.5%.
Office: After a strong start to office REIT earnings season, results over the past 24 hours have tempered the optimism a bit, particularly for West Coast markets. Paramount Group (PGRE) plunged 8% after reporting very weak results and significantly lowering its full-year outlook driven by the bankrupcy of First Republic - its largest tenant - and deepening distress in the San Francisco office market. PGRE leased just 72k square feet of space in Q2 - 70% below its pre-pandemic average from 2017-2019 - with just 12k SF leased in San Francisco Back in June, PGRE slashed its dividend by more than 50%, one of nine office REITs to lower its dividend this year. Kilroy (KRC) slipped 1% after reporting mixed results, noting that its occupancy rate dipped 300 basis points from the prior quarter, driven by several significant lease expirations in its Seattle portfolio. On the upside, KRC still managed to raise its full-year outlook for both same-store NOI and FFO, and was able to secure an 11-year $375M secured loan at a 5.90% fixed interest rate - relatively attractive pricing compared to recent large debt raises in the office sector. Vornado (VNO) finished flat after reporting mixed results as well, recording leasing volume of 279k square feet - down about 10% compared to pre-pandemic-levels, but pricing was relatively firm with cash renewal spreads of 5.7%. We'll hear results this afternoon from Douglas Emmett (DEI), Hudson Pacific (HPP), and Boston Properties (BXP).
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