REIT Earnings Surge: Is This the Start of a Lasting Revival?

Earnings Season Winners & Losers

At the sector-level, Healthcare REITs were the "star of the show" this earnings season, as senior housing results showed robust - and continuing - momentum in senior housing operating fundamentals. Industrial REITs were also upside standouts, buoyed by a broader uplift across the "goods-side" of the real estate sector, which includes Farmland and Timber REITs. Retail REITs were also upside standouts, with strip center and mall REITs reporting another quarter of near-record occupancy rates and rent growth, while pushing back on concern over a sudden surge in retail bankruptcies.

Results from Net Lease, Casino, and Residential Mortgage REITs - several of the most rate-sensitive sectors - were also surprisingly steady despite the turbulence in late 2024. Among individual names, we've seen a powerful "relief rally" in some of the most trouble REITs - Medical Properties (MPW), Hudson Pacific (HPP), and Blackstone Mortgage (BXMT) - and notably strong performance from WP Carey (WPC) and American Tower (AMT) - two pre-pandemic winners but post-pandemic laggards.

Dividend news was also a positive highlight of REIT earnings season. We've seen 29 REITs raise their dividends this year - slightly ahead of last year's pacing at this time, boosted by the first dividend hikes in nearly a decade for a pair of major healthcare REITs: Senior housing REIT Ventas (VTR) raised its dividend by 7% (2.9% dividend yield) - its first dividend hike since 2018. Medical office REIT Healthpeak (DOC) raised its dividend by 2% (6.2% dividend yield) - its first dividend increase since 2016.

Other highlights include a hearty 20% increase from First Industrial (FR), a 17% hike from Xenia Hotels (XHR) a 15% increase from single-family rental REIT American Homes (AMH), a 13% increase from residential mREIT Dynex Capital (DX), a 12% increase from strip center REIT Urban Edge (UE), a pair of 10% hikes from Equinix (EQIX) and Iron Mountain (IRM), and a healthy 8% dividend hike from manufactured housing REIT Equity Lifestyle (ELS).

That said, we also saw the first trio of dividend reduction, with commercial lender Ares Commercial (ACRE) slashing its payout by 40%, Arbor Realty (ABR) indicating a 23% dividend cut next quarter, and Global Net Lease (GNL) reducing its dividend by 30% following a major portfolio sale. While there were no major "bombshells" at the sector-level this earnings season, results from Hotel REITs were disappointing given the sustained record-levels of travel demand in recent quarters, as margin pressures from higher labor costs have taken a sizable bite out of bottom-line FFO profitability. In a similar light, Office REIT results were also mildly disappointing, as an encouraging property-level recovery has been stymied by higher financing costs.

Relatedly, Commercial Mortgage REITs have generally disappointed after another flurry of office loan defaults and a stubborn uptick in sector-wide delinquency rates, underscoring the bifurcation between property-level trends and bottom-line profitability. Among individual names, Claros Mortgage (CMTG) has been pummeled as soft results were compounded by pressures from a sizable equity offering, pushing its discount to Book Value to a staggering 85%.

Steady Growth Creates Compelling Valuations

REITs delivered average FFO growth of 2.4% in 2024 - a modest deceleration from the 2.5% growth in 2023 - and expect to see a slight reacceleration to 2.6% growth in 2025. While 2-3% FFO growth during this "real estate bear market" is not particularly impressive, it's likely quite a bit better than most "generalist" investors would assume given the profoundly negative narrative in recent years.

Of note, REITs have delivered cumulative FFO growth of roughly 18% since the start of 2022, during which time REIT stock price performance is effectively flat, underscoring the relatively compelling valuations of REITs compared to the broader equity market. Stay tuned this weekend for an extended follow-up report covering the Winners and Losers of REIT Earnings season, with notes on incremental positives and negatives we've observed across each of the major property sectors this earnings season.

About the Author

David Auerbach boasts over two decades of experience in the securities industry, specializing as an institutional trader with a focus on Real Estate Investment Trusts (REITs), Equity and Preferred stocks, MLPs, ETFs, and Closed End Funds.

Based in Dallas, TX throughout his entire career, David currently serves as the Chief Investment Officer for Hoya Capital, managing the Hoya Housing 100 ETF (Ticker: HOMZ) and The High Yield Dividend ETF (Ticker: RIET). Previously, David held the position of Managing Director at Armada ETF Advisors, the sub-advisor for the Residential REIT ETF (Ticker: HAUS) and The Private Real Estate Strategy via Liquid REITs ETF (Ticker: PRVT).

Additionally, he acts as a consultant with IRRealized, LLC, focusing on corporate access in the REIT industry. David's industry journey includes roles at World Equity Group, Esposito Securities, and Green Street Advisors where he got his start in the REIT industry.

At Esposito Securities, he played a crucial role in building the REIT/Real Estate platform and worked extensively with institutional investors, Equity REITs, and ETF issuers.

Throughout his career, David has been quoted by reputable publications such as Bloomberg, WSJ, Financial Times, REIT.com, and GlobeSt.com. He has also made notable appearances as a featured guest on networks like Yahoo Finance, TD Ameritrade, and Bloomberg.

David holds a BBA in Finance from the University of Texas at Austin (May 1999) and an MBA in Finance from Southern Methodist University (May 2005). He maintains FINRA Series 7, 24, 55, and 63 registrations.

In his leisure time, David is an avid traveler, often found crisscrossing the country in pursuit of attending as many Phish concerts as possible.

Disclaimer

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.