Three Bellwether REITs With Upcoming Earnings Reports To Watch

A bellwether stock is defined as one that is believed to be a leading indicator of the direction of the economy, sector or market. When bellwether stocks post earnings, it's often a good bet that the rest of the sector will probably report similar earnings. After the bellwether reports earnings, other stocks of that sector will often rise or fall "in sympathy" with the bellwether.

Real estate investment trusts (REITs) have several subsectors, and each one has at least one bellwether stock. Several of these bellwethers will soon be reporting fourth-quarter earnings that should also influence the prices of other REITs.

On Jan. 17, Prologis Inc. PLD, a bellwether industrial REIT, was the first of these bellwethers to report its fourth-quarter earnings. Funds from operations (FFO) of $1.26 met the analyst consensus estimate and were slightly above FFO of $1.24 from the fourth quarter of 2022. Revenue of $1.76 billion missed the analyst consensus estimate of $1.81 billion but was a 10.37% increase over revenue of $1.59 billion year over year.

Prologis also updated its full-year 2024 FFO guidance in a range between $5.42 and $5.56. The analyst estimates were closer to the top of the range at $5.52. Prologis was down almost 2% in the premarket following the earnings announcement.

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Take a look at three other REITs that are bellwethers for different subsectors with upcoming earnings reports.

SL Green Realty Corp. SLG is a New York City-based office REIT and the largest office building landlord in New York. As of Sept. 30, SL Green Realty held interests in 59 buildings totaling 32.5 million square feet.

Many income-oriented investors like owning SL Green Realty for its monthly dividend of  $0.25 per share, but the dividend was recently cut from $0.2708. The forward FFO of $5.14 per share easily covers the $3 annual dividend now with a payout ratio of 58.3%. The annual dividend yield is 6.73%.

Over the past 52 weeks, SL Green Realty has led the 24 REITs in the office subsector with a gain of 17.19%. Its total return since Nov. 1 has been an incredible 53.8%.

Analysts have recently been more negative about SL Green. On Jan. 16, Truist Securities analyst Michael Lewis downgraded SL Green from Buy to Hold, while raising the price target from $44 to $47. On Jan. 11, Goldman Sachs analyst Caitlin Burrows maintained a Sell rating on SL Green, despite raising the price target from $30 to $36.

SL Green will announce its fourth-quarter earnings on Jan. 24. In addition to FFO and revenue, investors will be watching for shifts up or down in occupancy and rent collections as a bellwether for the subsector as a whole.

Mid-America Apartment Communities Inc. MAA is a self-administered residential REIT that specializes in purchasing and leasing apartment complexes. It owns just under 102,000 units in 300 communities across 16 states and Washington, D.C. Most of Mid-America Apartment Communities' properties are in the Southeast, Southwest and Mid-Atlantic states.

Mid-America Apartment Communities is a member of the S&P 500 and has been a public company for almost 30 years. The Atlanta and Dallas areas comprise over 22% of its same-store net operating income. Mid-America has paid 119 consecutive quarterly cash dividends since its initial public offering (IPO) in 1994.

Analysts are looking favorably at Mid-America before its earnings announcement. On Jan. 16, Mid-America received two analyst upgrades. Truist Securities analyst Ki Bin Kim upgraded Mid-America from Hold to Buy and Scotiabank analyst Nicholas Yulico upgraded it from Sector Underperform to Sector Outperform and raised the price target from $133 to $147.

Mid-America will announce fourth-quarter earnings on Jan. 30. As with SL Green, investors will be looking at increases or decreases in occupancy and average rent prices for clues to how the residential REIT subsector will perform in 2024.

Simon Property Group Inc. SPG is an Indianapolis-based retail REIT that owns and leases 250 properties consisting of shopping malls, restaurants, outlet centers and entertainment venues. It has locations in the top 25 population markets across the U.S. Simon Property Group was founded in 1960 and launched its IPO in 1993. Its occupancy rate for its U.S. malls and premium outlets at the end of the third quarter of 2023 was 95.2%, up from 94.5% in the third quarter of 2022.

Simon Property had the fourth-best price performance among retail REITs over the past 52 weeks, with a total gain of 22.36%.

On Dec. 21, Morgan Stanley analyst Ronald Kamdem downgraded Simon Property Group from Overweight to Equal-Weight but raised the price target from $132 to $143.

But on Jan. 16, Truist Securities analyst Kim maintained Simon Property Group with a Hold rating and raised the price target from $128 to $139.

Simon Property Group will announce fourth-quarter earnings on Feb. 5, and investors hope to glean the outlook for retail REITs this year. Are mall stores still going strong or are more vacancies occurring? Are rents stable, increasing or in decline? As a bellwether for the retail REIT subsector, Simon Property's earnings should offer some clues.

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