REIT Earnings Halftime Report | Seeking Alpha

This is an abridged version of the full report published on Hoya Capital Income Builder Marketplace on April 27th.

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Real Estate Earnings Halftime Report

REIT earnings halftime report

Hoya Capital

We’re approaching the halfway point of another newsworthy real estate earnings season with over 50 REITs representing 50% of the total market capitalization having reported results. Consistent with the trends seen across the broader equity market in which nearly 80% of S&P 500 companies have beat analysts’ EPS estimates, REIT earnings have been significantly better than expected thus far with the vast majority of REITs topping estimates. Among the 40 REITs that provided full-year guidance, 30 REITs (75%) raised their Funds From Operations (“FFO”) growth outlook – well above the historical Q1 FFO guidance increase rate of 60%.

REIT earnings scorecard

Hoya Capital

M&A has been the major theme through the first two weeks of REIT earnings season as Blackstone (BX) took its buying spree into another gear with two major REIT acquisitions in two weeks’ time. Student housing REIT American Campus (ACC) agreed to be acquired by Blackstone for $65.47/share, a 14% premium to its prior close. A week later, PS Business Parks (PSB) surged 12% after it agreed to be acquired by asset manager Blackstone (BX) at $187.50 – a 12% premium. For Blackstone – which oversees a massive conglomerate of real estate investment vehicles including the largest non-traded REIT, the deals are the fourth and fifth since last June following acquisitions of residential REITs American Campus (ACC), Preferred Apartment (APTS), Bluerock Residential Growth (BRG), and data center REIT QTS Realty (QTS).

blackstone M&A

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Dividend increases were the major theme last quarter, but the pace of REIT distribution hikes has moderated a bit over the past month following a historic start to the year. That said, better-than-expected FFO results and guidance increases indicate that REITs are well equipped to continue to raise their payouts in the quarters ahead. We’ve now seen 56 equity REITs raise their dividend this year along with 7 mortgage REITs. Three REITs have reduced their dividends – all small mortgage REITs – Orchid Island (ORC), Lument Finance (LFT), and Western Asset Mortgage (WMC).

dividend increases 2022

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Residential Real Estate Halftime Report

Apartment: (Halftime Grade: A) Seven of the eight major apartment REITs have reported results – which have been even more impressive than our high expectations – confirming that rent growth continues to soar by double-digit rates in early 2022 with few signs of moderation. Upside standouts included sunbelt-focused Camden Property (CPT) which raised its full-year FFO growth outlook by 500 basis points to 20.8% and Mid-America (MAA) which raised its FFO outlook by 270 basis points to 15.5%. NexPoint Residential (NXRT), meanwhile, recorded the strongest rent growth on new leases ever recorded in the apartment REIT sector at 24.3%. Essex (ESS) also reported impressive results, highlighted by 20.0% spreads on new leases in Q1, which accelerated further to 22.0% in April. Equity Residential (EQR) was the lone apartment REIT that did not raise its full-year outlook as strong rental trends were offset by an uptick in delinquency rates in its California market related to the delayed implementation of the state’s rental assistance program.

apartment REIT earnings

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Single Family Rental: (Halftime Grade: B+) We’ve heard results from one of the three single-family rental REITs. Invitation Homes (INVH) raised its outlook for full-year FFO growth to 12.5% – up 160 basis points from its prior outlook – and maintained its same-store NOI growth guidance at just shy of 10%. Riding the same secular tailwinds as their multifamily peers, SFR REITs have also seen insatiable rent growth over the past 18 months with few signs of slowing as INVH achieved rent growth on new leases of 14.8% in Q1 and 9.7% on renewals – roughly consistent with its record-high leasing results last quarter – while still managing to maintain occupancy rates at 98% and reduce turnover rates to less than 5%. We’ll hear results from American Homes (AMH) next Thursday and Tricon (TCN) on May 11th.

single family rents

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Manufactured Housing: (Halftime Grade: A-) We’ve heard results from two of the three MH REITs, both of which raised their full-year growth outlook. Sun Communities (SUI) reported solid results earlier this week and raised its full-year outlook. SUI now sees full-year FFO growth of 11.5% – up 170 basis points from its prior outlook – and sees NOI growth of 6.9% – up 40 bps. As anticipated, the strong results were driven by stellar performance in its RV segment, which recorded same-store NOI growth of 23% in Q1. Equity LifeStyle (ELS) reported similarly strong results and raised its FFO growth outlook to 7.9% – up considerably from its initial guidance last quarter of 6.3%. It also sees NOI growth of 6.8% – up 90 bps from its prior guidance of 5.9%, powered again by strong performance in its RV and marina segment.

manufactured housing REITs 2022 40

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Storage: (Halftime Grade: N/A) We’ve seen results from one of the five storage REITs, which entered this earnings season riding a perfect four-quarter streak of “beat and raise” reports from all five REITs. CubeSmart (CUBE) continued that trend with strong results in Q1, raising its full-year FFO growth outlook by 50 basis points to 13.5% and also raised its same-store NOI growth outlook by 50 basis points to 11.0%. CUBE noted that despite the headwinds from higher mortgage rates and a slower velocity of home sales that is seen a “continuation of positive trends from 2021” and believes that “demand trends remain constructive and will continue to support growth going forward.”

storage REITs

Hoya Capital

Technology & Logistics REIT Halftime Report

Industrial: (Halftime Grade: A-) We’ve heard results from seven of the twelve industrial REITs, six of which raised their full-year FFO outlook. Prologis (PLD), First Industrial (FR), and Duke Realty (DRE) all reported a remarkable surge in rent growth and raised their full-year outlook. PLD noted that its average rents on existing leases are 47% below market, equating to $2 per share of embedded earnings growth as these leases renew at current market rates. Industrial Logistics (ILPT) reported disappointingly slow progress in its plan to reduce its debt by selling assets from its recently-acquired Monmouth portfolio and an FFO drag from its bridge loan being used to finance the deal. Elsewhere, Rexford (REXR) has been the strongest performer this earnings season after raising its full-year FFO growth outlook to 13.4% – a substantial 430 basis point increase from its prior outlook – driven by record rent spreads of 71%.

industrial REITs 2022

Hoya Capital

Cell Tower: (Halftime Grade: B) All three major cell tower REITs have now reported results, two of which raised their full-year FFO outlook. American Tower (AMT) reported in-line results, modestly raising its full-year AFFO growth outlook to 4.2% – up 10 basis points – and its full-year revenue growth outlook to 14% – up 80 basis points. Crown Castle (CCI) also reported in-line results with no major changes to its outlook – modestly raising its full-year revenue growth outlook but maintaining its FFO guidance. CCI commented on its earnings call: “With the three established network operators and a new intranet scale and DISH, all upgrading and developing nationwide 5G networks, the fundamentals in the U.S. market are as positive as I can remember during my 20-plus years at Crown Castle.”

cell tower REITs

Hoya Capital

Data Center: (Halftime Grade: B) We’ve heard results from three of the four data center REITs, just one of which raised their full-year outlook. Digital Realty (DLR) maintained its guidance which calls for FFO growth of 4.9%, but did record its highest quarter ever for new and expansion leasing activity, signing leases representing 167M of annualized GAAP rental revenue. Iron Mountain (IRM) rallied after reporting strong results in its growing data center division, noting that it executed 35MW of new and expansion leases – roughly $40M in annualized revenue – and now expected total additions of 130MW this year, up from 50MW in its prior outlook. Equinix (EQIX) also reported strong results and raised its full-year AFFO growth outlook to 7.2%, up 20 basis points from its prior outlook driven by “the best net booking performance in our history, fueled by strong demand across all three regions, robust net pricing actions, and near-record low churn.”

data center REIT earnings 2022

Retail REIT Halftime Report

Net Lease: (Halftime Grade: B+) We’ve heard results from four of the fifteen net lease REITs, three of which raised their full-year FFO growth outlook as the rising interest rate environment hasn’t yet hindered these REITs’ ambitious external growth targets. Getty Realty (GTY) raised its growth outlook to 7.1% – up 100 basis points from its prior forecast while noting that it sees “compelling opportunities’ and expects investment activity to accelerate throughout the year. Elsewhere, Essential Properties (EPRT) raised its FFO target by 260 basis points to 15.6% while Alpine Income (PINE) raised its outlook by 240 basis points. We’ll hear results on Friday from W. P. Carey (WPC) and next week from Realty Income (O) and Store Capital (STOR).

net lease REITs

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Shopping Center: (Halftime Grade: A) We’ve heard results from four of the 16 shopping center REITs, all four of which raised their full-year FFO and NOI growth outlooks. Results from Kite Realty (KRG) have been most impressive with a 330 basis point increase in its full-year FFO growth outlook to 18.0% – the strongest in the sector. Kimco (KIM) also reported very strong results and significantly raised its full-year FFO growth outlook to 8.8% – up 280 basis points from its prior guidance. KIM noted that it increased its pro-rata portfolio occupancy by 30 basis points sequentially to 94.7%, representing the highest sequential occupancy increase in a first quarter in over 10 years. Elsewhere, Retail Opportunity (ROIC) recorded an acceleration in rent spreads to 8.9% in Q1, driving a 200 basis-point increase in its full-year FFO growth outlook. SITE Centers (SITC) nearly matched that increase with a 170 basis point upward revision in its full-year outlook and recorded similarly solid leasing results with spreads of 5.6%.

shopping center REITs

Hoya Capital

Office, Hotel, & Healthcare Halftime Report

Office: (Halftime Grade: B+) We’ve seen results from 11 of the 24 hotel REITs, of which five have raised their full-year FFO growth outlooks. Sunbelt-focused Highwoods (HIW) and Piedmont (PDM) both raised their full-year FFO growth outlooks as Sunbelt office markets continue to substantially outperform coastal markets. Outside of the Sunbelt, results from West Coast-focused Kilroy (KRC) were also impressive, driven by strong lab space demand. SL Green (SLG), Empire State Realty (ESRT), and Paramount (PGRE) – each of which focus on the NYC market – have seen a slow but steady recovery in leasing demand in the Manhattan market. The rents on these leases, however, remain well below pre-pandemic levels as SLG noted its renewal spreads were -15.1% in Q1 in its Manhattan market segment.

office REITs 202

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Healthcare: (Halftime Grade: N/A) We’ve heard results from four of the seventeen healthcare REITs. Alexandria Real Estate (ARE) reported strong results as lab space demand remains insatiable. ARE reported the second-highest leasing volume in company history for both total space and development and redevelopment space, achieving GAAP rent growth spreads of 32.2% and boosted its full-year outlook and now sees adjusted FFO growth of 8.0% – up 30 basis points – and NOI growth of 6.9% – up 40 basis points. Medical Properties Trust (MPW) rallied after reporting solid results as well, commenting that its hospital assets “continue to perform exceptionally well, and the organic growth benefits provided by our inflation-protected leases were realized early in 2022, as average cash rents for the majority of our portfolio increased by roughly 4%.” MPW revised the format of its guidance to a calendar year outlook from the previous “run-rate” estimate, and the updated outlook calling for 14.6% FFO growth this year is slightly above the midpoint of its prior estimates on a comparable basis.

healthcare REITs

Hoya Capital

Hotels: (Halftime Grade: N/A) We’ve heard results from two of the sixteen hotel REITs. Pebblebrook (PEB) – which owns a portfolio of upscale hotels in CA, NY, and FL -reported moderately improving fundamentals in its hard-hit coastal markets, noting that its RevPAR was 23% below 2019 levels, a decent improvement from Q4 in which RevPar was 32% below pre-pandemic levels, and expects RevPAR to be 8-10% lower from 2019 levels in Q2. Hersha Hospitality (HT) rallied 6% today after it reported that its RevPAR was just 14% below comparable 2019-levels in the first quarter as strong ADR growth of 10.5% above 2019-levels helped to offset occupancy levels which were 20.8 percentage points below 2019-levels. HT also announced an agreement to sell seven properties for gross proceeds of $505M or ~$360K/key and use the proceeds to “significantly” reduce its debt. After the completion of the transaction, Hersha will own 26 hotels in New York, Miami, DC, Philadelphia, and Los Angeles. Recent TSA Checkpoint data showed a recovery in demand to 90% of pre-pandemic levels in April but has trended sideways at that level throughout this month.

hotel demand

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Mortgage REITs

Residential mREITs: (Halftime Grade: C+) We’ve heard results from 5 of the 24 residential mREITs and results thus far haven’t been as bad as feared. Dynex Capital (DX) has been an upside standout, reporting that its Book Value Per Share (“BVPS”) rose 1.4% during Q1. Annaly Capital (NLY) reported that its earnings available for distribution (“EAD”) was flat in Q1 at $0.28 – above the $0.25 consensus – but noted that its book value was “not immune to the effects of Agency MBS underperformance,” recording a 15% decline in its BVPS to $6.77. Armour Residential (ARR) – the most “pure-play” agency mREIT – recorded a 17.9% in its BVPS to $8.48 at the end of Q1, and estimated its BVPS at $7.63 as of April 26. Orchid Island (ORC) – perhaps the most “troubled” mREIT in the sector – reported a 23% BVPS decline in Q1 which was not as catastrophic as some feared.

mortgage REITs

Hoya Capital

Commercial mREITs: (Halftime Grade: B+) We’ve seen results from 6 of the 17 commercial mREITs, where the movement in BVPS have been far more muted with an average reported increase of 0.4%. Blackstone Mortgage (BXMT) has been among the best-performing mREITs this year and reported that its BVPS was flat in Q1 at $27.21 while highlighting how its strategy is effectively a “floating rate business.” That theme applies to middle-market lender Seven Hills (SEVN) as well, which recorded a 2.9% increase in its BVPS to $18.17. Elsewhere, KKR Real Estate (KREF) reported that its BVPS increased 0.4% during Q1 to $19.46/share while Apollo Commercial (ARI) recorded a modest BVPS decline of 1.6% in the quarter. The earnings calendar heats up in the week ahead with results from two dozen mREITs.

mortgage REIT earnings 2022

Previewing The Second-Half of Earnings

Consistent with the trends seen across the broader equity market, REIT earnings have generally been better than expected with the vast majority of REITs topping estimates and raising full-year guidance. Residential and industrial REITs have been the early upside standouts thus far as rents continue to soar by double-digit rates across these sectors amid a substantial and lingering demand/supply imbalance. Sunbelt outperformance remains an ongoing theme across most sectors, but particularly in office and hotel REITs. While still early, mortgage REIT earnings results haven’t been as weak as feared given the historic bond rout in early 2022. We’ll continue to provide real-time coverage with our Earnings QuickTake posts for Hoya Capital Income Builder members and will publish follow-up articles summarizing our thoughts and analysis throughout earnings season.

REIT earnings

Hoya Capital

For an in-depth analysis of all real estate sectors, be sure to check out all of our quarterly reports: Apartments, Homebuilders, Manufactured Housing, Student Housing, Single-Family Rentals, Cell Towers, Casinos, Industrial, Data Center, Malls, Healthcare, Net Lease, Shopping Centers, Hotels, Billboards, Office, Farmland, Storage, Timber, Mortgage, and Cannabis.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

high dividend yield index

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