TCN - Winners Of REIT Earnings Season

2024-03-05 09:00:00 ET

Summary

• Over 200 U.S. REITs and homebuilders have reported fourth-quarter earnings results over the past six weeks, providing critical information on the state of the commercial and residential real estate industry.
• 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.
• Consistent with the "Tale of Two Economies" trends that we've discussed, upside surprises this earnings season came largely from the service-oriented pro-cyclical property sectors - retail, hotel, and specialty REITs.
• Fittingly in an "AI-generated" earnings season, Data Center REITs posted the strongest returns this earnings season. Pockets of weakness were seen in the interest-rate-sensitive property sectors - net lease and office - along with goods-oriented sectors - farmland, timber, and cold storage.
• We've seen roughly two dozen REITs raise their dividends this earnings season - lifting the full-year total to 29 - while seven REITs have lowered their dividend this year, nearly all of which are linked to office-related headwinds.

Real Estate Earnings Recap

Over 200 U.S. REITs and homebuilders have reported fourth-quarter earnings results over the past six weeks, providing critical information on the state of the commercial and residential real estate industry. Beneath the reignited interest rate headwinds that have pressured the sector, REITs delivered one of their strongest earnings seasons since early in the pandemic recovery, and the back-half of the earnings season was actually a bit stronger than the first-half. Of the 88 equity REITs that provide full-year Funds From Operations ("FFO") guidance, 59 REITs ( 67% ) beat the midpoint of their forecast, 19 REITs ( 22% ) matched, while just 11 REITs ( 10% ) missed estimates. This 67% FFO "beat rate" finished ahead of the historical REIT sector average in Q4 of roughly 65%, and ahead of the 55% "beat rate" in Q4 of 2022. Consistent with the "Tale of Two Economies" trends that we've discussed, upside surprises this earnings season came largely from the service-oriented pro-cyclical property sectors - retail, hotel, and specialty REITs - and from the still-supply-constrained single-family housing and logistics markets....

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