Deidre Woollard: Fools you are here for the Millionacres Hour where we get to talk real estate. We're going to do a little rapid-fire returns today. Huh, Matt?
Matt Argersinger: That's right. I think we've got seven or eight companies earnings that we're going to be talking about.
Deidre Woollard: I just love earning season. I love listening to the calls, the whole process I think is really exciting. But I think one of the things that we're going to talk about today is how you can use, looking at this particular quarter, to give you a look at what the longer goals of the company are. That's why I think for investors, it's like a check-in point. I don't think that a lot of people make a decision to stay or go based on a single earning season and I'm not sure you should, but it should either contribute to or maybe takeaway from your investing thesis. What do you think?
Matt Argersinger: I totally agree with that. I think that's exactly the right way to think about earnings. I think a lot of investors who have followed the market for years see a lot of volatility around earnings. Stocks go up and down pretty sharply. We don't see so much of that in the real estate market, but for investors, and when investors your default a long term investor, that's what David Gardner always says, and so, yeah, I think they're just useful checkpoints. Now, if you have a thesis about a company, I do think quarterly earnings can tell you if something's changed or if there's a different direction the company is taking in the long-run that could inform you about whether or not you want to keep holding the stock, but that's rare. I mean, I think generally every recommendation I know we make in Millionacres, we're looking at hold for at least three years, but preferably a lot longer. Every quarter's earnings are just another yeah, like you said, checkpoint into what's going on with the business. But almost always never a reason to take any action with the company at all.
Deidre Woollard: Yeah, but sometimes there are a few surprises in there.
Matt Argersinger: There always are a few surprises and we'll probably talk about a few of them, I guess throughout the course of the hour. I will go ahead and let me share my screen, Deidre. This is where I always panic, of course. Can you tell me if you see that?
Deidre Woollard: Yeah, I see it.
Matt Argersinger: Oh, good. This is the real estate investing hour with Millionacres and of course, I like to think of it, Deidre, as the get rich slow hour infill lab because I think so many of the conversations that we see across Fool Live or talking about exciting companies like Square and Afterpay. Afterpay, which I know nothing about, but it sounds really exciting and Square's buying them for some reason. But I do know something, a little stuff about real estate and so let's get into it. I like to always talk about as you know Deidre, the taking a broader look at the market performance and hey, it's been a fantastic year for stocks. These returns as of yesterday's market close. The S&P 500, 17.8 percent, I mean, by any measure, that's a fantastic two-years most of the time. Of course, the Nasdaq 100 is just right there as well. But real estate is still king, here we are we're through seven months. We have five months to go, I'm hoping that real estate keeps its crown, but it certainly has so far. As you can see, the Vanguard Real Estate ETF up over 26 percent, which is fantastic. But I have to say, I'm a little disappointed in this slide a little bit because if I look at our real estate winners recommendation or our mogul recommendations, they're trailing the Vanguard Real Estate ETF by a little bit so far.
Deidre Woollard: Just a little bit.
Matt Argersinger: Just a little bit, but still enough that I'm little irked by that. Hopefully somewhere recommendations can kick it into higher gear for the rest of the year and catch the Vanguard Real Estate ETF because it is my preferred benchmark, I guess, when it comes to real estate investing. It's had a fantastic year, unreal. One of the things I think that's happening this year, and Deidre, you and I have looked at this table that came out a little while ago, which I think is so informative. Because if I think about the years coming in to 2021, now of course we had a historic pandemic, we have a historic pandemic and that really affected returns in 2020. But even before that, real estate REITs were under performing the market. They've had a relatively under performing decade actually going back to the last financial crisis. One of the reasons I think that might be the case is because we had such low inflation over the past decade up until recently. If you look at this and understand how REITs have performed in low inflationary markets, you can see that, yeah, it's not unusual for REITs to have under performed. This year, of course, and beginning late last year, we began to see a real pickup in inflation in a lot of parts of the market. We know the economists have been talking about it, Feds have been talking about it. Whether or not it's transitory, how much it's going to translate. It certainly doesn't seem transitory in the housing market, which we'll talk about in a bit. But there is a real inflation scare I think, in the market and that could actually be helping REITs. Because if you look at how REITs have performed during periods of moderate inflation or high inflation, REITs have been the preferred investment vehicles during those periods. I'd just like to talk about that, but then let's also talk about one other factor that I think is helping REITs, which is balance sheets are in the best shape, Deidre, they've been in years. If you look at the interest expense as a percent of net operating income, we are at the lowest point, gosh, going back to the early 2000s. Dare I say, I don't know how far this data might go back, but I bet you it's probably multi-decade low. Well, back into the '90s and '80s in terms of that. You can see that not only are REITs benefiting from a lot of pricing pressures in the market, but also benefiting from just having great balance sheets and being able to be nimble and take advantage of the opportunities in the market. Is that what you've been reading about and seeing?
Deidre Woollard: Yeah, I think that's really important right now. One of the things that I was looking for in second-quarter earnings was to hear about acquisitions. Ever since the pandemic started, we've heard so much about dry powder on the sidelines, maybe distressed assets, all of that. Looking a little bit to see what companies are planning to do and really what they're seeing in commercial. Because the pace has picked up obviously since last year, lot of deals going down, but that flood of distressed properties never happened. Some of that dry powder is still just siting there.
Matt Argersinger: It is. You go back to the first, second, third quarter last year you had a lot of REITs who pulled back. They had acquisition plans for 2020, they cut those back big time, they cut dividends or paused dividends. Just by the severe impact of COVID, REITs really just burned down the hatches and just slowly they started opening them up as you pointed out. I think as we'll talk about this quarter, second quarter here, 2021 they gained a lot more confidence about the economy, about the situation with the pandemic, the vaccinations and they said, "Okay, well, we feel like we have a little more visibility finally with the economy and where things are going, let's go make some investments and let's put some capital work and in some cases, let's reinstate our dividend, which we had cut or suspended." That's definitely taking place and based on the data here, REITs are in a great position to do that. I love this.
Deidre Woollard: One of my favorite little pie charts.
Matt Argersinger: Oh, yeah, I can look at this for hours actually. But it's a comparison of the sector breakdown of REITs between 2010 and 2020. What's fascinating, is just the changes that you can see and some of them are not that surprising. Look at what the biggest sector was, Deidre, in 2010, retail, 29 percent, I can't believe it was that big. Here we are in 2020, it's been cut more than in half and that might not be surprising. I think what is surprising is just how much shrunk as a percentage of total market cap. That's incredible, but it's just again, talking about e-commerce and the rise of online retailing over the last decade, especially that's had a huge impact. What also stands out to me, is just some of the sectors that didn't even exist back in 2010. One of them being datacenters. Datacenters were out there of course, but they were tapped in, I think, underneath industrial or maybe even diversified. I don't even know. But here they are they're 10 percent of total market capitalization of REITs. That's been a big one.
Deidre Woollard: Infrastructure stands out to me too thinking right now about the infrastructure bill and what's going to happen with that. What we're going to see in the future could be very interesting.
Matt Argersinger: Especially in terms of REITs in the telecommunication space, the expansion of broadband, the need for more network infrastructure that fits right into that big slice of the pie. Other things probably less surprising, I mean, offices stayed roughly the same. Self-storage has stayed roughly the same. Residential has stayed mostly the same. Maybe one that is also interesting is just what's happened to lodging resorts, which have also gone the route of retail, which is they've been cut down quite a bit over the last decade or so. That business, maybe it's Airbnb, maybe it's other factors has just become a lot more competitive, a lot more difficult.
Matt Argersinger: If you look at the cap rates, for example, the valuations in the lodging space, so many other sectors of the real estate market have seen compression when it comes to cap rates. You'd see that normally if interest rates are lower, cash flows are more optimized, that tends to happen. But it certainly hasn't happened on the lodging side. We love charts here at Millionacres, so apologies, but this is another great one just showing what parts of the REIT market had benefited the most since 2019 Q4, which was the quarter prior to the pandemic, and then data based on in this case the first quarter of 2021. You can see it's pretty obvious from the chart, the sectors that had benefited most from a funds, from operations, from a real estate cash flow perspective have been, of course, infrastructure, industrial, datacenters, self storage. What's hurt? Well, probably the obvious ones, lodging/resorts big time, retail, office, health care also, interestingly, has suffered a little bit during the pandemic.
Deidre Woollard: All of that senior living and things like that.
Matt Argersinger: Yeah. Great point. That's exactly what's hurting that the most. Well, if you could go back in time, Deidre and you knew that there was going to be a global pandemic, you could place your chips. Well, you knew where it was going to go, and that's certainly played out over the past year or so. Finally, another look at how REITs have performed really through and after the pandemic. The sea of red there you've seen in the middle [laughs] that really stands out is I think the acute phase of the pandemic, at least in terms of the stock market. You can see February 21st, 2020 to March 23rd, 2020, there was not a single sector of the real estate market spared really, wasn't a part of the stock market in general that was spared for sure. Everything just got hit pretty badly. Then in the next column over, you had this big rally out of it. Then you go all the way to the far right, which is interesting, which is, where do things stand today? You can see even the hardest hit sectors, the retail, lodging, health care, as we just talked about, they haven't fully bounced back yet. Even though you've seen a 99.6 percent [laughs] surge in regional malls since the bottom or since just last fall. But a lot of those sectors just haven't reclaimed their prior footing, and that's also the case if you go down to the office, which is an obvious one, and a little bit of the residential still hasn't quite bounced back. I'll point out though, this data is as of mid-May. I think June, July were also pretty good for REITs. It'll be interesting to see when now REIT comes out with their July monthly numbers where things stand because I think a lot of these sectors have bounced back even further. But an interesting picture of just REITs performance through and after the pandemic. Anything standout to you, particularly in this table, Deidre?
Deidre Woollard: I think one of the things that we saw was this Barbell Effect of before reopening, before November last year, datacenter REITs, infrastructure REITs, and then you had that switchover to the reopening ones, retail and hospitality. Now, we're in this space that's not sorted out yet. Retail and hospitality is still recovering, but still question mark. Some of the office REITs definitely still a little bit of a hesitancy there. I think is just going to be really interesting to watch over the next few months because we just don't know. But when you think about it, some of this is market sentiment versus what's actually happening, and I think that's an important thing to keep in mind too.
Matt Argersinger: Oh, yeah, sure. In the short-term, this is, I mean, it's almost [laughs] the whole market sentiment pretty much. I like what you said, which is, there is just tug of war now between stay at home stocks, and the recovery stocks or reopening stocks, and you could tell which months were benefiting the stay at homes and which months were benefiting the reopening. Now, it's a muddled picture, and I think offices right in the middle of it, it could go either way. It's so much uncertainty still. Well, let's get into some earnings because that's what we really wanted to do today with the hour. I want to start out with NVR, which is a leading homebuilder, one of my favorite real estate companies actually, and just looking quickly at how they did in the second quarter. Well, revenue up 41 percent, net profits of 96 percent, almost doubling. To be fair, that's coming off Q2 2020, which of course was, again that really acute I think COVID quarter where you had companies like NVR, they were seeing cancellations, they were pulling back on new orders, backlog was declining. It was a really uncertain time for so many companies and so it was just hard to do business in a sense back then, but still very impressive growth off that really tough quarter. Here is one number that really stands out though that I saw. NVR's gross margin of 23.8 percent, highest in almost 15 years. That's incredible. You have to go back to the last housing bubble or strong market back in the 2006-07 period to see the gross margin as high as that. That's incredible. What's fascinating is, one of the headline numbers with NVR this second quarter was that new orders were down six percent. That's the first time I've seen that happen. Followed NVR for a while, you just see new orders keeps growing and growing. But in this case, it was a result of NVR saying, "We don't want to push forward strongly in certain markets because A we don't want to commit to new orders given where the pricing was during most of the quarter." But that's okay because they made up for it in price because the average sales price of an NVR home was up 20 percent to 440,000. That correlates with all the numbers we've been seeing, Deidre that have come out about the price of new homes from other various sources. So they're seeing it in their own inventory stock, which is just incredible. Go ahead.
Deidre Woollard: Well, I was going to say yeah, there is a little more inventory than there is on the existing home sales side. But the other thing, you mentioned that gross margin. More of the things that we're seeing in some of these REITs and we'll talk more about it later, is the idea that there was something about the pandemic that got companies scared, and I think they got smarter, and they trimmed their margins in some ways. I think NVR is just an example of that of being smarter about things.
Matt Argersinger: Just knowing how to operate. Again, watching how companies pivoted so quickly last year was just a marvel. It's just not something you see now. The actual recession we know now was pretty short, was short-lived. I think it went about two months. But that still didn't account for so much of the uncertainty that carried through last spring and last summer into the fall. I'm talking about before we even knew there was an opportunity we have vaccines available. There were just so much uncertainty. You can see. Like you said, I think NVR and other companies found ways to be more efficient, cut costs when it was smart to do that, and stay nimble, and have the ability to bounce back when things have turned up, and certainly 2021, things are turning up. Just looking ahead really quick for NVR backlog up 19 percent on a unit basis, 35 percent on a dollar basis, so their business is going to be pretty strong for a while given those numbers. Then my big question with NVR and pretty much all home builders is, can they meet this demand? Because the demand is huge in so many markets. But can they do that and still protect margins. Deidre, at least in the second quarter, it doesn't seem like NVR is having any trouble with that at all.
Deidre Woollard: Well, I think one of the reasons you've talked about before that you like NVR is their smart moves on the way that they make sure they have land available and using options, which I think is really smart. The other good news is, lumber went up and then lumber went down, lumber is creeping back up again, but it's not at that terrible rate that it was a few months ago. But I think commodities are going to continue to be a concern for homebuilders. How to have enough product available so they can keep building.
Matt Argersinger: No doubt. Let's stick with the housing sector for a little bit and let's go into the single-family rental business. Invitation Homes, one of the leading SFR companies in the country. Look at the revenues, up 9.3 percent here. Core FFO, really impressive, up 14.4 percent. Same-store net operating income. That's net operating income, per portfolio house that's been in the portfolio for at least 15 months, stabilized, available to lease up 8.4 percent, 89 percent of their buying. That's interesting to hear, it's still one-off transactions. This is Invitation Homes going out there like any other homebuyer and competing to buy homes that come on the market.
Deidre Woollard: Yes and no.
Matt Argersinger: Yeah.
Deidre Woollard: Because I think the thing that they're doing now is they're buying up the iBuyer homes in certain markets in massive quantities. There's this whole new system that has been developed since the great financial crisis of these iBuyers recycling these homes into these large institutional portfolios. I find it a really interesting shift to watch.
Matt Argersinger: Yes and Invitation Homes, just another avenue for them to buy home efficiently. Speaking of buying, they acquired nearly 1,600 homes year-to-date, spending up $570 million and going into 2021. Dow Standards CEO, had talked about that they want to spend at least a billion this year on new homes. It's going to be their biggest acquisition of homes, probably since they did the Starwood merger several years ago. Big year of adding homes and they up that even more with their recent partnership with PulteGroup to buy 7,500 homes that are actually designed specifically for rental purposes. That's an interesting. I think that's just another thing, Deidre, where another way for them to efficiently expand their portfolio in a way that's smart and fits exactly what they're looking for in certain markets.
Deidre Woollard: The other thing I find interesting about what they're doing is, they're starting to really focus on add-ons. SmartHome add-ons, air filter add-ons, things like that. They are not just creating, they've created the system of renting out homes, but now they are creating all these little ancillary streams of income. They're not a big part of revenue yet, but there is something to keep an eye on because I think that's really an interesting move and a smart one.
Matt Argersinger: Yeah, of course. They raise their guidance for the year. They've done that twice now so far this year. The dividend payout, a lot of people look at Invitation Homes, and they look at the dividend yield and like wait less than 2 percent dividend yield, what? If you take the FFO as a percentage of their FFO, it's only 47 percent. I think there's lots of room there to grow the dividend. I think the company is just in so much growth mode right now, but I wouldn't be surprised if a few years from now we see some pretty healthy step-ups in Invitation Homes as dividend. Investors, you might want to get ahead of that. This is a table that you had to go down and lag page 36 of [laughs] Invitation Homes, like supplemental financial information. I think it's fascinating and this just tells the story. If you look at the rental rate growth. This is new lease, renewal leases and new leases that Invitation Homes signed in the second quarter and the change in the rental amount per when they did this in each home. If you look at some of the numbers here, look at Phoenix, Arizona at 23.6 percent increase in the rent of new leases that they signed. That is huge. Twenty two percent growth in Vegas, you can go to the Florida properties and you see some big double-digit gains there, Atlanta off 15.6 percent, Texas continues to be strong. Even in like the Midwest, you've got Chicago and Minneapolis. You've got pretty healthy increases in rents there. What's extraordinary is that, maybe these are coming off COVID a little bit and so maybe there were some concessions and brands were a little bit lower than they otherwise should be, but these are some tremendous numbers. It just speaks to that inflation that we're seeing. It's certainly showing up in rents as well.
Deidre Woollard: Yeah. There isn't a market where it's really cool. If it's a relatively large metro, it's rents are up.
Matt Argersinger: Big time.
Deidre Woollard: With the possible exception of San Francisco and New York, but that's a correction of really inflated rents.
Matt Argersinger: Yeah. No doubt. All right. Talked about home-building, talked about single-family market. Let's say about Multi-Family and Mid-America apartment communities. What we've talked about in the past. Lot of strong things going on here, Deidre, do you want to maybe walk us through this one?
Deidre Woollard: Yeah. Starting with that first bullet, I loved that only 151 residents requested rent deferral. They've given rent deferral to thousands of tenants over the course of the pandemic. By the end of July they'd collected most of their rents. They've talked about it on the earnings call. The storm for them is over. They're not concerned particularly about the eviction moratoriums expiring having any future impact on them. They think they've seen all of the impact they're going to see.
Matt Argersinger: Yeah. A hundred and fifty one residents is so small compared to what it's been in previous quarters. I was surprised, I don't know if you were, Deidre. I was surprised when I think it was last week, when the Biden Administration made a strong push to encourage Congress to extend the eviction moratoriums sorry, losing my head for second. Yet you saw Mid-America, Avalon Bay, all the other multi-family Invitation Homes really go up strongly that day. It occurred to me and I put it out on Twitter and of course, Twitter's sometimes you just, the people come out of the woodwork and they can remind you how dumb you are. Sometimes and it's great. But a follower said, well actually, if you think about it, it's never going to pass congress. [laughs] Doesn't matter what the Biden Administration does. I don't think congress is going to have enough boats to extend it. I was like, okay, of course. It's not something that the Biden Administration can do with an executive order so therefore, it's unlikely that the CDC eviction moratorium is going to be reinstated or expanded or extended. That is good news for Multi-Family and Mid-America and the others, but as you pointed out, Mid-America, it wasn't really concerned from them even going into the second quarter.
Deidre Woollard: The evictions that are taking place are really hitting the smaller a lot of the mom-and-pop landlords and the interesting thing is, I agree, we're not going to see the CDC eviction moratorium come back, but I think we are going to see some individual states and counties walk things back just because courts will get overwhelmed. We've seen that happen already in the pandemic a couple of times so I wouldn't be surprised to see that happening on a state and county level.
Matt Argersinger: Yeah. Good points. Just as we saw with the previous slide on on a rent growth for Invitation Homes, like new lease pricing for Mid-America up 17 percent, renewal pricing up nine percent. Your blended average there is 12 percent. For the average, Mid-America tenant is paying 12 percent more today than they were going into the second quarter. That's just tremendous growth there. They're not concerned, as you pointed out. They're not concerned about competitors moving into their area, which is surprising because as we know, they operate mostly in the Sunbelt markets. That's where everyone's moving, so how could they not be concerned about competition?
Deidre Woollard: They talked about that on the call and part of the reason that they're not concerned about it, is because they feel like for the most part because they're at the established player in this space. They're getting right of first refusal on a lot of potential acquisitions. They feel like because they already have such strong market share in those areas, they were a little dismissive of it on the earnings call.
Matt Argersinger: Interesting. Redevelopment is a big thing for them. They're always refreshing and renovating their own portfolio. They've redeveloped 1,800 units in the second quarter and had an average rental increase of 11 percent. They spent around $5,000 to do that, which is a pretty good ROI with that kind of investment. Always building, they've got eight communities under construction. This is fascinating and this last bullet points to the markets they're in. But they are in the markets where 28 percent of people live, but represent 42 percent of new household formation. Again, this is where people are going and this is where Mid-America is and has been for years. All right. I put this chart up. These aren't Mid-America's markets here, but I thought this was interesting too because we saw last year certainly and rack gosh, in the summer and fall of last year, tremendous concessions in apartments. If you were looking to rent an apartment in New York City, Los Angeles, DC, even just one of those really historically tight markets, you've got some pretty good breaks. In a lot of ways, you probably got a couple of months free rent or another break on pricing and it was just a great time if you were looking to lock in a nice one or two year lease. But as of this last quarter at least, those concessions are almost pretty much gone. [laughs] That just speaks to how fast the rental markets bounced back in a lot of markets. It's amazing to see just another evidence of how fleeting, I guess, the worst of the pandemic, the economic effects of the pandemic were for Multi-Family real estate.
Matt Argersinger: Well, that's okay. We held the residential spots. Let's talk about industrial which has never fell off, [laughs] and it's only seen as stronger. STAG Industrial, one of my favorites, and we talk about it all the time. But here you had second-quarter core funds from operations, $0.50 up 10.6 percent year-over-year, same-store cash, net operating income 90.9 million, that's up 4.4 percent. STAG stepped back from their acquisitions for most of 2020. They got back into it in the fourth quarter. But they've really picked up so far this year, and they acquired nine buildings in the second quarter for a 126 million. That's a pretty big quarter for STAG. STAG is a leading industrial company, but they on a mega company. As you pointed out Deidre, it's not just Amazon, which I think still remains their biggest tenant. But they've been driven also leasing to smaller logistics companies as well. Doubled the size of our acquisition team. They see opportunities in the market. Raised guidance. Stock is at an all-time high. I followed STAG for years and no pun intended, but it sends a stock need it for a long time, and STAG break $40 a few weeks ago for the first time. It was what's like, wow, that's quite a move from a relatively sleeping stock like STAG Industrial.
Deidre Woollard: I think a lot of investors want to see this acquisition, want to see it expand because there's so much potential in Industrial. I think one of the things that's interesting is that everybody understands the industrial right now because of Amazon, because we've been talking about it for a year. That's you don't get that like, bank for people when you talk about it anymore. I think that's part of what's contributing is that people are looking for great industrial stocks than that STAG for sure.
Matt Argersinger: I think if you ask the average investor a couple of years ago, like, hey have you ever thought about investing in industrial real estate? They would think, why would I want to invest in factories and realm state and things like that.
Deidre Woollard: Exactly.
Matt Argersinger: It's pretty much nowadays industrials, in other words, for warehouse fulfillment logistics, that's where things are certainly heading. I'll have to say that the one thing, we're talking about STAG, we'll talk about EastGroup in a second, but I do worry a little bit about STAG'S approach because STAG's strategy is very much acquisition driven. They like to go in to secondary markets mainly, and find where they can buy things off market or negotiate for single assets. They feel like that's an advantage for them. But even in that, I think the cap rates you're seeing for industrial property, their historic laws, evaluations are extreme. You've got big, big players like Blackstone, of course is better in the market. Not to mention Prologis, their long time competitor. It's got to be tight and I just worry. They've made smart acquisitions throughout their history and I don't doubt they will continue to do that. It's just going to probably be harder and harder to buy and industrial property for cap rate of 5.5 percent, and think that you can manage it effectively and then maybe sell it for a similar or even better valuation in the future. That is going to be something to watch for sure. Contract STAG with EastGroup. EastGroup, another awesome industrial companies with great track record, their focus is mostly on development. They do some acquisitions, but they're mostly about ground-up development. Let's skip all the other bullets and go right to that bold underlying one right there in the middle which is, I think this is mind blowing rental rates up 31 percent. Those are rental rates they're signing for new leases that they signed on their properties in the second quarter, 31 percent. If you're a tenant of one of EastGroup's properties, your rents just went to a 31 percent. Could you imagine being a partner rental Deidre, and having your [laughs] landlord comes here and says, ''I've raised your rent to 31 percent.'' But in a way, the demand is so high and in certain cases it's so costly for a tenant to move that they've got to stick around, and in a lot of ways these rates are catching up because you have to remember tenant signed leases for five, 10-year timeframe. Some of this is catching up. The market has certainly gone higher and EastGroup is catching up with a lot of tenants and tenants knew this was coming. But my gosh, that's still mind-blowing number 31 percent. To go along with great funds from operations growth, average occupancy almost 97 percent. They've adding properties, either some new development or properties they've been doing value-add on, a 166 consecutive quarterly cash dividend. That's impressive. It's almost getting into that Dividend Aristocrat zone. But I think you also have to raise your dividend renewal to be, I don't know. What's interesting here too, is a lot of people look at EastGroup and say, "Dividend yields are low compared to STAG and others, why's that?" Well again, development's a big reason focus on growth, but if you look at their dividend payout ratio, just 54 percent. Whereas I imagine someone like STAG, it's probably up in the 70 percent range, so definitely room to increase the dividends in the near-term for EastGroup and we'll see if they do that. They did last year. We'll see if they do it maybe before the end of this year. Let's shift over to the most muddled picture I think, of the real estate market, which is office. But we'll start with one that's-
Deidre Woollard: That's not so office.
Matt Argersinger: Not so office more like a life sciences R&D, whatever, however you want to classify it, but It's in the office sector, so we'll treat it as an office. But Alexandria Real Estate Equities, really strong leader in again, life sciences R&D office. But they've been, again, one of those companies that didn't skip a beat really in 2020. In fact, they're probably seeing, given so many things that happened with the pandemic, including the need for more lab space, they're benefiting big time from that. In fact, they think the fundamental drivers to demand for their real estate, it's the strongest they've ever seen, and they're in the highest quarterly leasing in the 27 years of the company. That's amazing just in this quarter.
Deidre Woollard: But there's so much at demands they talked to on the earnings call about the number of startups in the biotech space, the amount of venture capital flooding to that space, all of that is good news for them. They've got Pfizer Madonna and Johnson Johnson as tenants, and that 750 tenants, so they've just got so much demand coming at them right now.
Matt Argersinger: You mentioned in the tenants, I think over 50 percent of their tenants are either large, publicly-traded corporations or credit tenants. That's a great tenant roster to have. No worries about collections, as you can see right there. Here's the one bullet, of course, the mix we worried when I look at their acquisitions in the quarter,580 million at cap rates in the 4 - 4.2 percent range. It's wow. There's two ways to look at that, that's really expensive or they're buying properties where there's lower occupancies to write the net operating income might be compressed at the moment, which is another reason why cap rates can be low. But assuming those are mostly stabilized properties, those are hefty prices to pay. If you're a company like Alexandria, you can borrow money cheaply. You have great credit, you have no problems with ever accessing or tapping the capital markets. You can probably make those cap rates work, especially if you think the rental yields on those properties are lower and you're going to boost those up and drive higher NOY. But just like we saw with STAG, the one thing I worry about is, you have some very aggressive companies that are seeing opportunities in the market. But man, they're probably paying a hefty price for some of their opportunities.
Deidre Woollard: Yeah, and part of that is their cluster strategies. They are buying inexpensive markets, they're buying in Boston, they're buying and San Francisco, they're buying in Raleigh-Durham, which has gotten really expensive because of the attention that's gone there so that I think is part of it as well. That's part of the problem of life sciences. But a concern is that you are limited to certain markets because of the strategy.
Matt Argersinger: They know those markets, as you pointed out, this is already owned property and a lot of cases, they know they've been following a lot of these buildings for years, decades, probably and understanding of where there's opportunity better than most. You pointed out that they haven't been focused on ESG, which I think is great. If you look at a lot of their buildings and developments, these are high-end classy office buildings that are state-of-the-art when it comes to-
Deidre Woollard: Beautiful buildings.
Matt Argersinger: Energy efficiency in technologies. In a way, you might look at that and say, well, what's the ROI on doing that. Well, the ROIs will tend to attract a lot of high-end tenants want to be in buildings who want to work in those buildings because of that.
Deidre Woollard: We need to satisfy those demands from their shareholders as well if their publicly traded. That's a good look for them. There's that growing awareness of ESD across real estate right now that I think companies that are getting ahead of better are smart. STAG is one of them that's been doing a lot with solar power. It is a smart move for the long-term in my opinion.
Matt Argersinger: Absolutely. Here's one due to that, I know a little bit less about Boston Properties. Maybe you can walk us through their earnings.
Deidre Woollard: Not a great quarter for them, but they're dealing with bosses. They're heavily clustered in some of the similar areas of Alexandria, but they don't have that much in life sciences. They've got less than six percent now. They're trying to play catch-up. They've got three new lab developments. One of them is in Montgomery County, one is in Greater Boston in Waltham. They're trying to pick up speed. But it's not great for them because they've got a lot of traditional office. They talked about the San Francisco market being behind the New York City market and the Boston market in terms of office re-openings in general and they've got a lot of presence in San Francisco, that's been hurting them in general. They're moving toward life sciences. They're doing a lot of interesting things, but they're still suffering a lot of losses and it's any continued delay and people going back to the office and companies starting to make those decisions long-term, I think it's going to hurt them. They don't have a lot of leases coming due over the next couple of years. It's one of the things they talked about on the call, but enough that it is a little bit of a concern. There's betting that the companies, the offices that have five years more or seven years more, we're going to be in a different world by then. But we may not be in a different world a year or two from now.
Matt Argersinger: This is such a contrast with Alexandria. This is your traditional office.
Matt Argersinger: In traditional markets, like you said, you're in New York City, San Francisco's at the world and certainly haven't bounced back. Then what's also a big bummer is that I think before this Delta variant sprung up. Unfortunately, I think you had a lot of big corporations. You were looking to get the workers back to the office probably by the fall, for the most part, even the end of summer. I think a lot of those plans have been pushed off a little bit and again, you thought. That has got to be hurting Boston Properties for sure. I think I like what you have on the next slide, which just they're breakdown. In my mind, this is exactly how probably most traditional office tenant rosters look like down here. It's pretty diversified across a lot of different sectors, but where they want to probably more obviously in the life sciences area where they have a six percent presence, or even technology a little bit. They probably wanted to be more in those areas.
Deidre Woollard: Even manufacturing. Anything where people actually have to be in the building. You can look at this little chart and go through it and things like, okay, how many people in that sector need to be in the office and figure it out that way. When you start looking at it through that lens it gets a little scary.
Matt Argersinger: Yeah, it does because you've got your legal services, your heavy financial services. Those are a lot of places where most firms can probably work pretty effectively at home or even more distributed than a collective office. Tough going right there right now for Boston Properties. Tough going, but not really. Retail, Simon Property Group. Pretty darn impressive quarter. I have to say I didn't get to look into it too indefinitely. I think you probably look at it more than I did Deidre. Man, if you wanted to bottom fish a year ago, this was probably the scariest one you want to look at. This is a wow. Mall is are already dead and this is going to be like the final nail in the coffin. But in fact, Simon Property Group has bounced back really tremendously. In fact, they are increasing dynamic currency rates or dividend. What is going on here.
Deidre Woollard: Frankel has been saying this along throughout the pandemic that Simon was, if you were going to bet on retail, Simon was the one you should bet on because rock solid balance sheet, nothing to worry about there. Even the thing is that they've done that. I've been a little bit cast aside IAD, bedding in on Aeropostale, Brooks Brothers, Eddie Bauer, J.C. Penney. That's paid off for them, which is fascinating. The Simon Property Group, it's always a good earnings call. David Simon is so proud of his company. He gets a little feisty with the analysts, which I'm not mad about. But he was very clear about physical retail is not going anywhere. They are continuing to grow. They're seeing lots of activity, lots of demand for their leases. We've got here signed 2500 leases year-to-date.
Matt Argersinger: That's impressive.
Deidre Woollard: They're really seeing demand from stores, from restaurants. They're seeing strong foot traffic. He's pretty darn happy with where they're at right now.
Matt Argersinger: Yeah. They seem very confident. I was looking at a nice dividend yield of about 4.7 percent, I think right now, which is, say what you will about retail. But I'm sure this is one of the smartest, if not the smartest retail company probably in the country again. I think even Simon team know how to manage it and we'll probably manage it effectively for shareholders. I wish I just dove in when things were terrible last year.
Deidre Woollard: [laughs] Wow, the interesting thing is just talking a little second about watching some of the retail numbers this year. Watching some of the earnings from companies, like Skechers, and Nike, and things like that.
Matt Argersinger: Yeah.
Deidre Woollard: Retail has been pretty good this quarter. Not everybody is winner, but a lot of things have been pretty strong and all of that I think is good news for Simon too, because these companies I think they've done enough of the store closures that they're going to do and now they're starting to think they're getting smarter about where they reallocate. Some of that could be good news for Simon because Simon does operate the malls. If you're going to go to the best mall, Simon usually is the best mall.
Matt Argersinger: Yeah. No doubt. I think this is our last one, hospitality. Ryman Hospitality Properties. Hey, just speaking of bouncing back, right?
Deidre Woollard: Yeah.
Matt Argersinger: This is one that's bouncing back.
Deidre Woollard: Yeah. On the call, Colin Reed, their CEO, they ended up talking a lot about July that part of the quarter. But just the strength they are seeing right now; they've been seeing a lot of rebookings. Rebooked a 1.9 million so far this year, that's a lot of nights, 66 percent of those lost. But what's interesting is that the new organic bookings are now outpacing to rebookings, that just started to happen for them. They see that as a real positive. Colin said that he feels like they are going to come out much stronger than they went in. He talked a lot about loyalty and return visits that they actually have more of a loyalty-based strategy versus a product-based strategy. They don't have a ton of hotels. There a few Raymond properties, but they're all these really great resorts that people want to come back to you with their companies, with their families time and time again, that that's some of the long term value there.
Matt Argersinger: Yeah. In final month of the second quarter, we also generated 28 million in operating cash flow space. They finished similar strong, as you mentioned July, is looking to create for them. Great to see the Gaylord National back open, that's just across the river from where you live I think.
Deidre Woollard: Yes. I can see it from here. The smart thing was that they did a massive room renovation while they were closed, I thought that was really smart. It's done on time, on budget. I want to go check it out myself. But the other thing I found was really interesting is that they're booking concerts. That's part of the thing with Ryman. They've got the grand old operated that Ryman Auditorium. They're seeing massive demand for entertainment and thinking about this, hopefully the Delta variant will mess this up. Everyone, it seemed to be out in Chicago at Lollapalooza over the weekend. There's a strong demand for entertainment, for seeing concerts is one of the things people missed most during the pandemic. I think that's part of what has been fueling interest in Ryman as well.
Matt Argersinger: Yeah. One of the companies that I tend to follow as well is Live Nation. You see they own some incredibly great venues and obviously they're hoping for that too. They were seeing a lot of that. Then of course now it's just again, as we talked about the Delta variant, how bad is it going to be? How bad is the fall are going to be? It seems like we're heading in the really right direction. Hopefully, we still are certainly it's run a little bit of a curve ball into the mix.
Deidre Woollard: Matt I just want to mention one more thing about Ryman.
Matt Argersinger: Yeah.
Deidre Woollard: The quote from Colin Reed about margins. He said that will run at improved margins when we're through this. So similar thinking about that I've heard from other companies too, is that it really did change how companies allocated resources.
Deidre Woollard: Ryan Schneider, the CEO of Realogy talked about that on their earnings call. Some of the lessons of the pandemic are actually going to help them in the long-term.
Matt Argersinger: All right. There you have it. We hit a bunch of earnings results.
Deidre Woollard: [laughs] Can't believe we got through it all.
Matt Argersinger: I know. But there are more to come in the days and weeks ahead.
Deidre Woollard: Yeah. Thursday is the day that I'm looking most forward to. Look at that, August 5th, that is a great day to checkout some earnings.
Matt Argersinger: Big time. I mean, Boston Omaha. You saw the news, I'm sure with their SPAC deal for Sky Harbor.
Deidre Woollard: Yeah. I know. Matt Frankel is doing a deep dive on that for you for Real Estate Winners.
Matt Argersinger: Yeah.
Deidre Woollard: It should be very interesting. I don't know much about Sky Harbor, so I'm really intrigued.
Matt Argersinger: I don't know much either and what I've looked at in the last few days. But just strategically, if you think about rich people or corporations flying privately to strategic locations or resort locations throughout the country, they seem to have some pretty good spots. I have to say that's got to be a growth business, especially post-COVID if you think about it. Just the idea of flying privately to a private hangar, airport, being able to, again if you're a very wealthy person, store your plane there and fly in and out and avoid the massive airports and all the stress that can come along with that in the commercial airliners. Anyway, I think that's a great addition to Boston Omaha's portfolio there. We'll just have to see how it plays out. MGM Growth Properties is another one I'm looking forward to this week just to, again, to see how their business is bouncing back, what's going on there. Opendoor is, wow, what a struggle?
Deidre Woollard: Yeah.
Matt Argersinger: They report next week. Again, we think of them as the most direct way to bet on the iBuying phenomenon, but the market has not been kind to their stock [laughs]. I think this is going to be their first full quarter of earnings since going public.
Deidre Woollard: Yeah. I think so.
Matt Argersinger: I am very interested to see what they have to say about how the business is going in.
Deidre Woollard: Do you think some of that negativity is just the thing that seems to happen sometimes during the first year?
Matt Argersinger: No, I agree. Airbnb is another one on there. You're seeing that I think Airbnb is trading below where, they came public at much lower price, but where they debuted was I think higher than where the stock is trading today. It can happen. I think there tends to be a lot of skepticism early on with newly public companies. David Gardner told me something a long time ago that I always forget which is he's always paying attention to new public companies and rule breakers or he was in the past. He usually like to wait until a company was public for at least a year. If you look back a year after a company debuted and they were beating the market since that first trading day that they're public that's usually a really good sign. It's almost like if you're interested in Airbnb and Opendoor or other new public companies, Matterport's one that just went public via SPAC. Almost wait a year. You might miss out on some returns,
Deidre Woollard: Yeah.
Matt Argersinger: but you'll get validation by the market as to whether these businesses are going to succeed. I think that was always a fascinating way to approach it and no one is going to doubt David Gardner's track record
Deidre Woollard: [laughs] Right?
Matt Argersinger: to picking new companies. So there you go.
Deidre Woollard: But I think there is that eagerness. A lot of people like, "Oh, it's new and exciting."
Matt Argersinger: [laughs]
Deidre Woollard: But there's a lot of prudence in waiting.
Matt Argersinger: Absolutely. Then one company that always reports so late out of the cycle and it's always almost forgotten, it's Vail Resorts because they're a little bit of an off schedule, but what's amazing about Vail Resorts is, they recently hit a new all-time high. If you think about a company that their timing was just right and their business was just right for a pandemic, no businesses is right for pandemic,
Deidre Woollard: Right.
Matt Argersinger: especially in a resort business. But their ski season was almost wrapping up when the pandemic really hit in 2020, then we got to a point in the following fall where things were struggling, their bookings were down and their ticket sales were lower. But skiing became almost an escape for a lot of people. It's a lot easier to go rent a condo or a ski lodge and go skiing with your family, which tends to be a more inclusive event than some other vacation options. Their business really ski through this, terrible pun end. I think you're going to validation of that when they report their ticket sales and bookings next month.
Deidre Woollard: One of the things that's interesting with them too is the impact of remote work has been good for them and
Matt Argersinger: Yeah.
Deidre Woollard: remote schooling. People thought, well, if my kids are just at home doing Zoom, they can do Zoom anywhere. Who knows what's going to happen with the Delta variant this fall in terms of schools. Some schools have already started, we've seen some reports of cases. It's going to be interesting to watch what happens there and then how that impacts entertainment, hospitality, office, all of that. One of the things that I love studying real estate is just because it's all a human behavior and it all connects together. When one thing changes, everything else changes.
Matt Argersinger: Yeah. Well, I will stop sharing. That was a lot of earnings, Deidre. My head is spinning a little bit [laughs].
Deidre Woollard: But we've got a couple of people asking for the slides.
Matt Argersinger: Sure. I guess maybe they can send someone a direct message. Maybe you [laughs] can send the slides, but I'm happy to share the slides for sure.
Deidre Woollard: I'll definitely figure out how to get the slides to you. We also got a question on examples of infrastructure REITs.
Matt Argersinger: Well, for the most part, infrastructure REITs these days is your American Tower, Crown Castle.
Deidre Woollard: Right.
Matt Argersinger: SBA Communications. There's one more company that's always escapes me, but it is pretty much dominated by your cell towers. Infrastructure is almost their sector for the most part. They can almost call it tele-communications or networking, but its infrastructure.
Deidre Woollard: I've got another question about NVR. KD wants to know why the demand was down for them. I'm guessing it was a pricing thing, but do you have any more info on that?
Matt Argersinger: I don't. One thing about NVR is interesting is that they don't do conference calls.
Deidre Woollard: No. [laughs]
Matt Argersinger: All you get is just this really one page press release every quarter and of course, you get the annual report at the end of the year.
Deidre Woollard: Right.
Matt Argersinger: They don't reveal much. I think you're right, Deidre. I think it came down to pricing. People got a lot of cold feet. It could also be NVR doing that as well. They just decided to not market as much in certain markets where they wanted to see how pricing worked out. It could be a combination of price sticker shock, but also NVR's own sticker shock when it comes to input pricing.
Deidre Woollard: Yeah, definitely.