REITs Continue To Clobber Q1 Estimates

For two years, Wall Street has dismissed real estate investment trusts (REITs), with the idea that REITs cannot flourish in an inflationary environment with higher interest rates over a longer time.

But Wall Street may have gotten it wrong — first-quarter earnings reports for REITs continue coming in with an avalanche of estimate beats. In addition, the winners have been across several subsectors of the real estate universe, including residential, office, healthcare, mortgage, specialized and hotel REITs. Some of them have beaten estimates for at least two consecutive quarters.

Take a look at some of the better recent earnings beats.

American Tower Corp. AMT is a Boston-based specialty REIT that calls itself "a global leader in wireless infrastructure." Founded in 1995, American Tower owns, operates and develops wireless and broadcast communications real estate. Most of its business is leasing space on wireless and broadcast towers. It also leases portions of the land below the tower for equipment storage. Typical tower components are coaxial cabling and fiber optic cables.

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American Tower has a presence in 224,000 global communication sites in 25 countries on six continents. About 43,000 properties are in the U.S. and Canada, and approximately 181,000 are international. Contracts usually have a term from five to 10 years with renewal options and annual lease escalators of about 3%.

On April 30, American Tower released its first-quarter 2024 operating results. Adjusted funds from operations (AFFO) of $2.79 per share easily beat the estimate of $2.54 per share and revenue of $2.834 billion beat expectations for $2.795 billion and topped first-quarter 2024  revenue of $2.767 billion.

Morgan Stanley analyst Simon Flannery recently maintained American Tower at Equal-Weight and raised the price target from $183 to $196.

Centerspace CSR is a Minot, North Dakota-based residential REIT focused on the ownership, management, acquisition and redevelopment of apartment buildings. Its portfolio covers 70 apartment complexes with 12,883 apartments across the Midwestern and Mountain states of Colorado, Minnesota, Montana, Nebraska, North Dakota and South Dakota. As of February, Centerspace had an occupancy rate of 94.3%.

On April 30, Centerspace reported its first-quarter 2024 operating results. FFO of $1.23 beat the estimate of $1.13. Revenue of $64.506 million bested the consensus estimate of $64.381 million.

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In addition, Centerspace hiked its full-year 2024 FFO guidance from $4.68-$4.92 per share to $4.74-$4.92 per share. The Street's estimate was $4.77. 

This was Centerspace's second consecutive earnings report that trounced estimates. 

Seven Hills Realty Trust SEVN  is a Newton, Massachusetts-based mortgage REIT that originates and invests in first mortgages secured by middle market and transitional commercial real estate. Seven Hills has over $41 billion in assets under management. Seven Hills Realty Trust is managed by Tremont Realty Capital. 

On April 29, Seven Hills Realty Trust reported earnings per share (EPS) of $0.38, 2 cents better than the consensus estimate. Revenue of $9.362 million beat the consensus estimate of $9.101 million and topped first-quarter 2023 revenue of $9.347 million.

This was also the second consecutive earnings report for Seven Hills that was better than the estimates. Seven Hills also announced the financing and closing of a $17.8 million first mortgage floating rate bridge loan for an unnamed purchaser of the 160-unit Hilton Village Townhomes in Newport News, Virginia. 

Welltower Inc. WELL is a Toledo, Ohio-based healthcare REIT that owns interests in 2,096 properties, including senior housing, post-acute communities and outpatient medical properties. It does this by providing capital to the operators who run these facilities. Welltower was founded in 1970 under the name of Health Care Fund and was incorporated as a REIT in 1985. Welltower is a member of the S&P 500.

On April 29, Welltower reported its first-quarter earnings. FFO of $1.01 per share beat the consensus estimate of $0.95. Revenue of $1.859 billion beat the consensus estimate of $1.806 billion and topped first-quarter 2023 revenue of $1.561 billion. 

Welltower also increased its full-year 2024 FFO guidance from $3.95-$4.10 per share to $4.02-$4.15.

Wall Street may continue to disparage REITs, but one thing is certain — REITs will continue to find creative ways to enhance earnings, whether by paying down higher interest debts, selling nonproducing assets or maintaining high occupancy rates. 

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