EGP - Losers Of REIT Earnings Season

2024-05-23 11:00:00 ET

Summary

• After covering the Winners of the 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.
• Notable losers this earnings season included Industrial and Self-Storage REITs, which indicated softness across both the consumer and business side of the "goods economy," while Hotel REITs indicated moderating leisure demand.
• On the debt side, results from commercial Mortgage REITs provided few reasons to believe that mounting office loan delinquencies will meaningfully improve anytime soon and showed that - while widespread distress remains isolated to the office - no property sector is necessarily "safe" if rate-driven downward pressure on property values continues.
• Among tech REITs, Data Center demand and pricing power remained healthy in early 2024, but Cell Tower fundamentals remained soft amid a lull in carrier network investment. Solid results from Retail REITs were offset by surprisingly weak retail sales data.

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 Apartment, Healthcare, Net Lease, Cannabis, Farmland, and Office REITs, among others. We noted trends were a microcosm of the past two years across the REIT world, with interest rate movements dictating the narrative and stock performance, overshadowing what was ultimately a relatively solid earnings season for the sector. Consistent with the "Rates Up, REITs Down" paradigm, REITs sold off sharply in late April as the 10-Year Treasury Yield jumped to six-month highs, but rebounded strongly in early May as rates retreated on surprisingly weak economic data showing a rather abrupt downshift in economic activity in late Spring. Of the 99 REITs that provide guidance, 41 (41%) raised their full-year FFO outlook, 48 (48%) maintained, while 11 REITs (11%) lowered their guidance - a "raise rate" that is slightly above the historical first-quarter average of around 40%....

For further details see: