Winners of REIT Q1 2025 Earnings Season

Portfolio Review & Trade Alerts

As noted in our Trade Alert yesterday, with first-quarter REIT earnings season now complete, we’ve updated our Price Targets across the sector and are making a pair of trades in our portfolios. In the REIT Dividend Growth Portfolio, we’re buying Postal Realty (PSTL) – a small-cap ($360M) net lease REIT paying a dividend yield of 7.3% with one of the better 3-year and 5-year dividend growth rate in the net lease space. PSTL has lagged its peers this year despite delivering impressive Q4 and Q1 results – now trading at around 12x P/FFO vs. the 19x RIET average - presumably because of a “DOGE discount” which we believe is unwarranted given that leases represent just 1.5% of the USPS operating budget. PSTL replaces our position in its peer Nestreit (NTST), which is trading around fair value after outperforming YTD. The Dividend Growth Portfolio has an average dividend yield of 4.71%, a five-year dividend growth rate of 6%, and a FFO payout ratio of roughly 60%.

In the REIT Focused Income / High Yield Portfolio, we’re buying PennyMac (PMT) – a small-cap ($1.1B) residential mortgage REIT paying a dividend yield of 12.3% that has been among the most consistent and reliable mREITs in recent years. PMT’s focus is similar to that of Rithm Capital (RITM) - still our top mREIT pick – with a relatively diverse portfolio of credit-sensitive and rate-sensitive strategies which set these REITs apart the traditional agency MBS focus of their peers. PMT sold off after reporting mixed Q1 results, but we were encouraged by subsequent positive commentary indicating a commitment to this dividend rate and steady portfolio performance during the early April turbulence. We’re selling Crown Castle (CCI) in this portfolio given its reduced dividend rate following its fiber sale. The High Yield / Focused Income Portfolio now has a weighted average dividend yield of 7.68% with a healthy FFO payout ratio of roughly 70%.

We're also naming Broadstone Net Lease (BNL) as one of our three "Best Ideas in Real Estate" alongside Centerspace (CSR) and Apple Hospitality (APLE). Already one of our top holdings in the Focused Income Portfolio, BNL is a small/mid-cap (3.0B) net lease REIT that we believe is poised to break-through into the "upper echelon" of the net lease sector over the next year as it completes a multi-year portfolio repositioning strategy.

Winners of REIT Earnings Season

In Part 1 of our Earnings Recap - REIT Earnings Scorecard - we discussed the high-level takeaways from the roughly 200 reports from equity REITs, mortgage REITs, and homebuilders over the past six weeks. Here in Part 2 of this report, we discuss the Winners of REIT Earnings Season - followed by Part 3 discussing the Losers of REIT Earnings Season.

To summarize our Earnings Scorecard, first-quarter earnings results were generally in-line with expectations, with no major downside surprises despite the period of extreme interest rate volatility in early April. Of the 105 equity REITs that provide full-year FFO guidance, 28% raised their outlook, 63% maintained their outlook, while 9% lowered their 2025 FFO target, effectively spot-on with our pre-season forecast and roughly in-line with the typical first-quarter average. Of the 38 REITs that altered their outlook, 76% were upside revisions while 24% were downside revisions. By comparison, FactSet reports that among the 261 S&P 500 constituents that provided full-year Earnings Per Share ("EPS") guidance, 45% raised their full-year outlook, while 55% downwardly revised their full-year EPS outlook.

Technology REITs were the notable upside standouts, with all three Data Center REITs and two of the three Cell Tower REITs raising their full-year FFO outlook citing surprisingly solid demand. Results from Residential REITs were surprisingly solid, with single-family rental and apartment REITs confirming that rent growth has reaccelerated slightly in early 2025 after two years of sluggish trends. Relatedly, results from Self-Storage REITs were modestly encouraging as new lease rates appear to be stabilizing after eight straight quarters of double-digit annualized declines. Senior Housing REITs posted another rather impressive quarter with another round of significant upward guidance revisions on their critical SHOP segment. Industrial REITs reported only minimal impacts from tariff-related uncertainty, with expectations that East Coast logistics markets could be net beneficiaries of the China trade war. Mortgage REITs - both residential and commercial - reported steady results with no major "blow-ups" during the post-Liberation Day interest rate volatility, which was the most extreme since the early COVID turmoil.

Winner #1: Data Center

Data Center: (Final Grade: A-)

• Positives: AI-driven demand accelerating and still "early innings", impressive bookings from DLR (creating record-high backlog), strong pricing from DLR & IRM, positive demand commentary from EQIX.
• Negatives: Softer hyperscale demand in Q1, guidance increases driven primarily by FX, elevated churn at EQIX, softer trends in European markets

• FFO Guidance: 3 Raise | 2025 FFO Growth: 6.7%
• Top Performer: Digital Realty (DLR): +15.1%
• Worst Performer: Equinix (EQIX) +11.6%

Our Picks: Digital Realty (DLR)

Winner #2: Apartment

Apartment: (Final Grade: A-)

• Positives: Reacceleration in blended leasing spreads across-the-board, buoyant renewal rent growth, record-low turnover helping to control expenses, healthy occupancy despite record supply growth
• Negatives: New lease rates are still negative. Supply growth remains a headwind in the sunbelt, and there is still a limited appetite for external growth.

• FFO Guidance: FFO: 1 Raise, 10 Maintain | 2025 FFO Growth: 0.5%
• Top Performer: Camden Property (CPT): +9.1%
• Worst Performer: BRT Apartments (BRT): +0.5%

Our Picks: Centerspace (CSR), Independence (IRT), Mid-America (MAA)

Winner #3: Cell Tower

Cell Tower: (Final Grade: A-)

• Positives: Clear recovery in domestic carrier activity after two years of declines, AMT & CCI cite rebound in site applications to highest in several years, healthy mid-single-digit organic growth,
• Negatives: FFO growth still expected to be flat for second-straight year, CEO departure at CCI creates new uncertainty after long-awaited sale of fiber and small-cell portfolio, Starlink keeps getting better

• FFO Guidance: FFO: 2 Raise, 1 Maintain | 2025 FFO Growth: 0.1%
• Top Performer: Crown Castle (CCI): +8.3%
• Worst Performer: American Tower (AMT): +2.8%

Our Picks: Crown Castle (CCI)

Winner #4: Single-Family Rental

Single-Family Rental: (Final Grade: B+)

• Positives: Rent growth is re-accelerating in early 2025 after a three-year deceleration, Healthy FFO growth in 2024 & 2025 given recent housing market headwinds, Low turnover and relief on insurance renewals continues to keep expense growth in check
• Negatives: External growth remains relatively muted, Unchanged guidance despite positive trends, Sunbelt rents remain softer

• FFO Guidance: 2 Maintain | 2025 FFO Growth: 2.0%
• Top Performer: American Homes (AMH): +9.8%
• Worst Performer: Invitation Homes (INVH) +8.2%

Our Picks: Invitation Homes (INVH)

Winner #5: Self-Storage REITs

Self-Storage: (Final Grade: B+)

• Positives: New lease rates finally stabilize after two years of double-digit declines, buoyant renewal rent growth, upbeat commentary on supply growth, guidance increase from CUBE driven by lower expenses, Notably better Street Rate trends from NSA and improved disclosure
• Negatives: No bottom yet for occupancy rates, PSA noted softer Street Rate trends in April while other 3 reported improvement

• FFO Guidance: 1 Raise, 3 Maintain | 2025 FFO Growth: -1.7%
• Top Performer: CubeSmart (CUBE): +13.2%
• Worst Performer: National Storage (NSA): +5.8%

Our Picks: CubeSmart (CUBE)

Winner #6: Net Lease

Net Lease: (Final Grade: B+)

• Positives: Positive commentary on retail credit and overall tenant demand, healthy but disciplined acquisition activity, Strong report from EPR, Nearing completion of portfolio strategies from GNL & BNL.
• Negatives: Rebound in interest rates has again pressured stock prices, modest cap rate compression in Q1, several REITs dealing with modest hit from Zips Car Wash bankruptcy

• FFO Guidance: 4 Raise, 9 Maintain | 2025 FFO Growth: 2.2%
• Top Performer: Global Net Lease (GNL): +8.4%
• Worst Performer: Modiv (MDV): -10.5%

Our Picks: Broadstone (BNL), Realty Income (O), WP Carey (WPC), Getty Realty (GTY), Postal Realty (PSTL)

Winner #7: Industrial

Industrial: (Final Grade: B+)

• Positives: Solid leasing activity despite tariff impacts - including near-record bookings from PLD, rent spreads accelerate sequentially in Sunbelt, encouraging outlook for moderating supply growth by mid-year.
• Negatives: Ongoing weakness in Southern California, market rents remain negative nationally, Surprisingly soft results from cold storage REIT - Americold citing reduced inventory levels and reduced throughput.

• FFO Guidance: 1 Raise, 7 Maintain, 1 Lower | 2025 FFO Growth: 6.0%

Top Performer: Plymouth (PLYM): +11.2%

Worst Performer: Americold (COLD): -11.2%

Our Picks: STAG (STAG), Plymouth (PLYM), Rexford (REXR)

Winner #8: Residential mREITs

Residential mREITs: (Final Grade: B+)

• Positives: Strong results from non-agency mREITs, Dividend increase from NLY, No hedging-related blow-ups during the April volatility, upbeat outlook on incremental return on equity potential given wide spreads.
• Negatives: Weaker results from rate-sensitive Agency-focused mREITs, most mREITs noted mid-single-digit BVPS declines in April

Our Picks: Rithm Capital (RITM), PennyMac (PMT)

Winner #9: Commercial mREITs

Commercial mREITs: (Final Grade: B+)

• Positives: Steadier loan performance after across-the-board deterioration in late 2024, additional mREITs pivoting back to "offense" in 2025, recent CMBS data showing decline in office delinquency rates, notably strong results from ACRE, ARI, and TRTX
• Negatives: Rebound in interest rates dulls some recent optimism, dividend coverage continues to weaken, multifamily mezzanine/bridge debt and construction/development loan performance remain areas of concern.

Our Picks: Ladder Capital (LADR), Arbor Realty (ABR)

Recap: Winners of REIT Earnings Season

Technology REITs were the notable upside standouts, with all three Data Center REITs and two of the three Cell Tower REITs raising their full-year FFO outlook citing surprisingly solid demand. Results from Residential REITs were surprisingly solid, with single-family rental and apartment REITs confirming that rent growth has reaccelerated slightly in early 2025 after two years of sluggish trends. Relatedly, results from Self-Storage REITs were modestly encouraging as new lease rates appear to be stabilizing after eight straight quarters of double-digit annualized declines. Senior Housing REITs posted another rather impressive quarter with another round of significant upward guidance revisions on their critical SHOP segment. Industrial REITs reported only minimal impacts from tariff-related uncertainty, with expectations that East Coast logistics markets could be net beneficiaries of the China trade war. Mortgage REITs - both residential and commercial - reported steady results with no major "blow-ups" during the post-Liberation Day interest rate volatility, which was the most extreme since the early COVID turmoil. Stay tuned for Part 3 of our Earnings Recap covering the Losers of REIT 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.