Propmodo Daily

By Franco Faraudo · Jan. 31, 2024

Greetings!

We are approaching the earnings call season for some of the biggest publicly traded real estate funds. This quarter, there is heightened interest from investors and the global community due to the possibility of a real estate market downturn. In this discussion, we will examine the upcoming earnings reports of key REITs and analyze what insights they can provide about specific property sectors or markets.

Now let's dig in!

A Preview of the Most Anticipated REIT Earnings Calls

Public real estate portfolios are showing signs of recovery from last year's lows caused by surging interest rates. Optimism for a stable 2024 economy is growing, fueled by the Federal Reserve's suggestions of possibly lowering interest rates, despite not specifying when. Yet, most REITs haven't published their earnings since last year's end. Stock price fluctuations in this sector are now largely based on investor expectations. Earnings calls from several REITs in the days and weeks ahead will shed more light on the state of different asset types.

Welltower, a health care REIT specializing in senior housing and medical offices, saw a significant 41.8% growth in 2023, the highest among its competitors. After making $1.4 billion in acquisitions, the company expects its 2023 FFO (funds from operations) to hit the higher end of the forecast range. With strong occupancy growth and stabilized expenses, Welltower projects steady net operating income growth. The company will have its earnings call on February 14th. Ventas, the second-largest health care REIT, currently facing internal challenges due to an activist investor, is scheduled to hold its earnings call on February 14th too.

Digital Realty Trust, which operates over 300 data centers worldwide, has experienced steady growth with a 31% stock increase in 2023 thanks to its recent strategic shifts, including European expansion and a $7 billion joint venture with Blackstone for hyperscale data center development. The AI boom's impact on digital infrastructure and cloud computing investments is sparking significant interest, making the REIT's February 15th earnings call highly anticipated.

Prologis, the leading industrial property owner, has enjoyed four years of double-digit earnings growth. However, recent trends show a slowdown in the expansion of logistics companies, raising questions about future rent growth in industrial spaces. In their January 17th earnings call, Prologis acknowledged these challenges, expecting lower occupancy and reduced core earnings. Their strategy includes increasing property sales to potentially raise $1.2 billion in 2024 and significant investment in logistics projects. Despite these economic shifts, they continue to maintain strong occupancy in their warehouses.

NNN REIT Inc., an Orlando-based triple net-lease REIT, owns over 3,500 retail outlets nationwide, with diverse tenants like 7-Eleven and Best Buy. Renowned for its consistent dividend growth for 34 years, the REIT faces challenges, with a -7.04% return last year and key tenants like AMC and Walgreens struggling financially. Its upcoming fourth-quarter report on Feb. 8th will be critical in assessing consumer spending trends and the potential risk of a recession in 2024. Retail REIT Kimco reports on February 8th as well.

At the end of Q3 2023, Boston Properties, the largest office REIT, had a 90.4% occupancy rate with properties largely in resilient sectors like life sciences. Analysts recently have been bullish, upgrading ratings and raising target prices. Despite the broader market concerns about office spaces, the company has experienced a significant 33.59% return since November. However, its upcoming earnings will be crucial in assessing potential challenges regarding vacancies and rent collections. Boston Properties reports on January 31st, SLGreen on February 13th, and Vornado on February 8th.

AvalonBay Communities Inc., a major residential REIT, owns nearly 89,240 apartments across the U.S. Analysts have recently downgraded the company amidst sector shifts. The sector benefits when home buying declines, but a drop in rental occupancy could suggest either a housing market uptick or a recession. AvalonBay's total return over the past year stands at 9.09%, with pivotal fourth-quarter earnings set to be announced on January 31st. As for other residential REITs, Essex Property Trust reports on February 7th, Invitation Homes on February 14th, and Sun Communities on February 21st.

The strong performance of REITs in late 2023 could indicate that the conclusion of interest rate hikes might lead to a phase of REITs outshining other investments. The REITs always report earnings around this time of year, so this dump of market intel (and, of course, industry spin) will be nothing new. What sets this year apart is the heightened global attention focused on these reports and what it means for the U.S. economy.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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