GLPI - Losers Of REIT Earnings Season

2024-03-12 11:00:00 ET

Summary

• After covering the Winners of REIT Earnings Season last week, Part 2 of our Earnings Recap focuses on the worst-performing property sectors and common threads shared by these laggards.
• While there were no major "bombshells" this earnings season, there were pockets of relative weakness seen in the interest-rate-sensitive property sectors - net lease and office - along with goods-oriented sectors.
• Surging interest expense - not property-level fundamentals - was again the culprit behind much of this pain, underscoring the continued challenges facing more highly leveraged private real estate portfolios.
• Office REIT results were actually decent relative to the dismal narrative - showing a much-needed pickup in leasing activity in late 2023 - but the prospects for a recovery rest largely at the feet of the Fed, as elevated rates continue to put downward pressure on both valuations and free cash flows, thereby fueling the self-reinforcing cycle of distress.
• Oversupply headwinds have pressured fundamentals for the long-outperforming multifamily and storage sectors, but there were hints of a reacceleration in demand in early 2024 as the icy-cold housing market began to thaw from its Fed-induced hibernation.

Real Estate Earnings Recap

In Part 1 of our Earnings Recap - Winners of REIT Earnings Season - we discussed the nine best-performing property sectors, a list that included Data Center, Retail, Hotel, and Single-Family Residential REITs, among others. We noted beneath the "Rates Up, REITs Down" headwinds, REITs delivered a surprisingly solid earnings season, and certainly better than the downbeat prevailing narrative of "CRE distress" would suggest. Of the 88 equity REITs that provide full-year Funds From Operations ("FFO") guidance, 59 REITs ( 67% ) beat the midpoint of their forecast, - a "beat rate" that's ahead of the historical REIT sector average in Q4 of roughly 65%, and ahead of the 55% "beat rate" in Q4 of 2022. In Part 2 , we discuss the Losers of REIT Earnings Season, and while there were no major "bombshells" this earnings season, there were pockets of relative weakness seen in the interest-rate-sensitive property sectors - net lease and office - along with goods-oriented sectors....

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