3 REITs That Just Beat Analysts' Estimates

Real estate investment trusts (REITs) have had a rough time this year, as higher interest rates and fears of a recession have weighed upon the share prices of the stocks. Analysts have been adjusting earnings estimates lower for some time.

But REITs are reporting third-quarter earnings this week, and several are proving the consensus estimates wrong with better funds from operations (FFO) and revenue than expected. Take a look at three REITs that recently beat the Street estimates with improving numbers.

Empire State Realty Trust Inc. ESRT is a New York City-based diversified REIT that owns and operates a portfolio of office, retail and multifamily properties in the New York metro area. Empire State Realty owns the Empire State Building, one of the world's most famous buildings. As of Sept. 30, Empire's portfolio included 8.6 million rentable square feet of office space, 700,000 rentable square feet of retail space and 727 residential units in three multifamily properties.

On Oct. 25, Empire State Realty Trust delivered its third-quarter operating results. FFO of $0.25 per share was above the consensus estimate of $0.23 and 19.05% above FFO of $0.21 per share in the third quarter of 2022. Rental revenue of $151.46 million was 2.14% higher than revenue of $148.29 million in the third quarter of 2022. Total revenue of $191.53 million beat the estimates of $185.39 million and was 4.3% higher than revenue of $183.29 million in the third quarter of 2022.

Empire State also updated its full-year 2023 FFO guidance range to $0.85-$0.87 per share. The consensus is for $0.86.

On Oct. 2, Empire State announced it acquired two properties in the Williamsburg section of Brooklyn, New York, for an aggregate purchase price of $26.4 million.

Empire State Realty Trust jumped 8% following the earnings report.

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KKR Real Estate Finance Trust Inc. KREF is a New York City-based mortgage REIT (mREIT) that provides customized and structured collateralized loans to commercial real estate projects. Its portfolio of 71 loans across the U.S. is worth $7.87 billion. Of its loan portfolio, 55% is multifamily and industrial properties and the average loan amount is $124 million.

On Oct. 23, KKR Real Estate Finance Trust reported its third-quarter operating results. Mortgage REITs use earnings per share (EPS) rather than FFO in operating results. Non-generally accepted accounting principles (GAAP) EPS of $0.25 beat the estimates by $0.14. Revenue of $50.1 million beat the estimates of $42.9 million, although it was down 2.1% year-over-year.

After the earnings report came out, both Raymond James and JMP Securities maintained Outperform ratings on KKR Real Estate, with Raymond James analyst Stephen Lewis lowering the price target from $15 to $14.50 and JMP analyst Steven Delaney lowering the price target from $14 to $13. Based on the $13 price, the potential appreciation is 23.6% from its most recent closing price of $10.51.  

LTC Properties Inc. LTC is a Westlake, California-based healthcare REIT that owns and leases 208 healthcare properties, comprising 50% senior housing and 50% skilled nursing facilities. LTC Properties' revenue is derived from triple-net leases, mortgages and mezzanine loans from its 29 operators across 27 states.

On Oct. 26, LTC Properties delivered its third-quarter operating results. FFO of $0.65 per share was slightly above the consensus estimate of $0.64 but $0.05 above FFO of $0.60 per share in the third quarter of 2022. Revenue of $49.3 million was ahead of estimates of $47.98 million and 13.3% higher than revenue of $43.5 million in the third quarter of 2022. LTC also reported that although expenses were slightly higher year over year, it had reduced its expenses by 24.5% from the second quarter of 2023.

Analysts have covered LTC Properties extensively in recent weeks. On Oct. 3, Wedbush Securities analyst Richard Anderson initiated coverage on LTC Properties with an Outperform rating and announced a $36 price target. On Sept. 28, Berenberg Capital Markets analyst Connor Siversky initiated coverage on LTC Properties with a Buy rating and a $36 price target. On Sept. 20, Jefferies analyst Joe Dickstein initiated coverage on LTC Properties with a Hold rating and announced a $29 price target.

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