Mixed Bag of Q3 REIT Earnings/Guidance Sours Wall Street

REIT Insider and politician trade stocks, one sells, one buys

November 07, 2024

You're receiving this email because you’re subscribed to Real Estate from Benzinga. To manage your subscription, click the link at the bottom of this email.

Happy Thursday! It was certainly a wild week! Earnings, a weak job report, a national election, an upcoming Fed meeting and a new high in the Dow Industrial Average. it was a week to make a killing or lose your shirt, depending on which stocks you hold. Specialty, industrial and triple-net REITs struggled but hotel, residential and office REITs were on fire. About 70% of the REITs were higher by Thursday morning but the benchmark Vanguard Real Estate Index Fund ETF (NYSEARCA: VNQ) was up by just a fraction.

In this issue, Wall Street has no tolerance for overextended REITs that miss their guidance numbers, and a company insider sells 100,000 shares of common stock one day too soon while a Congresswoman goes on a pre-election tech shopping spree.

—Ethan Roberts

Were you forwarded this email? Click here to subscribe.

ONE BIG THING

Mixed Bag of Q3 REIT Earnings/Guidance Sours Wall Street

What: On first look, REIT third quarter earnings don’t appear to be so bad. In fact, Wells Fargo noted that of the 40 REITs it covers, 24 reported beats, there were 3 misses and 13 that met estimates. 27 of the 40 increased 2024 FFO guidance, 2 cut and 9 maintained their previous estimates. And yet, reporting REITs were performing worse than non-reporting REITs throughout the beginning of the week.

Who: REITs that reported excellent third quarters for earnings and revenue included Postal Realty Trust Inc (NYSE: PSTL), Ryman Hospitality Properties Inc (NYSE: RHP), Gladstone Commercial Corporation (Nasdaq: GOOD), NetSTRETIT Corp (NYSE: NTST), Alexander’s Inc (NYSE: ALX), Arbor Realty Trust Inc (NYSE: ABR) and VICI Properties Inc (NYSE: VICI).

Conversely, DigitalBridge Inc (NYSE: DBRG), Camden Property Trust (NYSE: CPT), Diversified Healthcare Trust (Nasdaq: DHC), Medical Properties Trust Inc (NYSE: MPW), Americold Realty Trust Inc (NYSE: COLD) and Franklin BSP Realty Trust Inc (NYSE: FBRT) all missed estimates on both earnings and revenue.

Several REITs beat the estimates on FFO but missed on revenue or vice-versa. Many times a REIT can report decent earnings but disappoint the street on forward guidance. But as Wells Fargo noted, more REITs either raised or maintained forward guidance.

On the other hand, Realty Income Corp (NYSE: O), which revised its prior 2024 guidance of $1.21-$1.30 lower to $1.15-$1.20 per share was trading higher pre-market on Tuesday, but then got creamed over the next few days.

Why: So why did Wall Street shrug off a good if not great quarter for most REITs and solid guidance numbers? Why didn’t the election boost all REITs? Much of it had to do with higher interest rates. The 10-year treasury was up to 4.44% on Wednesday but dropped to 4.371% on Thursday ahead of the Fed meeting. When interest rates climb, dividend stocks lose some of their appeal. Another important factor is that REITs had already run up so much heading into November.

For example, Realty Income had appreciated over 27% from July to mid-October and was quite overbought on a technical basis. So when Realty Income’s Q3 operating results were good but the guidance was slightly below the estimates, Mr. Market clobbered it. Ditto for fellow triple-net REIT, NNN Inc (NYSE: NNN), which missed on guidance by a mere penny but has now fallen from nearly $49 per share to $41.50 in three weeks. One major problem presently for NNN is some of its tenants not paying rent on time.

How about Iron Mountain Inc (NYSE: IRM), which beat the street estimates for FFO and revenue, AND raised guidance above the consensus estimate, but was down over 7% this week? Well, that’s what happens when your stock more than doubles over the last nine months! They demand perfection!

Takeaway: Mr. Market has a short memory and wants to know what you will do for them over the next six months. Sure, beating the estimates on FFO and revenue is important, but missing the guidance number after a big price run-up in a rising interest environment has Mr. Market impatient, so some REITs could continue to struggle.

PRESENTED BY ARRIVED HOMES

We know that real estate is the best long-run investment in modern history. But getting started is hard. Even when you do have a bunch of properties under your belt, then managing workload or scaling and diversifying is difficult.

What if there was a platform that - in less than 5 minutes - let you browse pre-vetted (<0.2%) properties, told you what the estimated appreciation and rental cash-flow of each one is, let you invest $100 to $50,000+ per property, and then literally took care of everything for you?

You just sit back, relax, and collect regular dividends while participating in the long-term appreciation of your properties.

Well there is. It’s called Arrived.com and it’s backed by world class investors like Jeff Bezos and Marc Benioff. Over 650,000 investors have already signed up and invested $193M USD. Click here to learn more.

WHAT WALL ST. SAID ABOUT REITS THIS WEEK

National Storage Affiliates Trust (NYSE: NSA) On November 6, Baird analyst maintained a Neutral rating on National Storage and raised the price target from $39 to $42. The analyst said modest improvement in the occupancy rate and existing customer rate increases (ECRI) remains solid.

DigitalBridge Group Inc (NYSE: DBRG) On November 4, Wells Fargo analyst Eric Luebchow maintained DigitalBridge at Overweight but lowered the price target from $18 to $16. The analyst feels that Fee Related Earnings (FRE) will be challenged and the firm’s numbers need to be reset lower with a large cut in guidance in the third quarter. DBRG missed estimates for Adjusted EPS and revenue in its Q3 earnings report and the shares were clobbered. DBRG was trading at $12.78 on Thursday morning, down 18.55%.

Cubesmart (NYSE: CUBE) On November 4, RBC Capital analyst Brad Heffern maintained Cubesmart with an Outperform rating while lowering the price target from $56 to $53. While the reported Q3 FFO was in line, revenue growth was slightly below expectations. However, Heffern noted the acquisition market is beginning to improve.

NNN REIT Inc (NYSE: NNN) On November 4, BNP Paribas analyst Nate Crossett downgraded NNN from Neutral to Underperform as four of its tenants were named by NNN on its analyst call as being “troubled” and one, Frisch’s Big Boy only paid half its rent in the third quarter. Crossett noted, “As a result, bad debt will likely edge higher than the 100 bp guidance management has previously outlined. He sees NNN as underperforming other triple-net peers.

Highwoods Properties Inc (NYSE: HIW) On November 1, Baird analyst David Rogers maintained Highwoods Properties with a Neutral rating and raised the price target from $30 to $32. The analyst noted that leasing activity is raising occupancy and there is more leasing upside to come through further property development.

FIVE ZINGERS:

New Construction woes: Redfin reports that newly built homes were only 28% of the nationwide single-family homes for sale in the third quarter of 2024, a decline of 30.5% year-over-year and the lowest level in three years. An increase in existing inventory, a rise in new construction sales and a slowdown in building were three reasons for the decline. Housing shortages have created a difficult market for young buyers.

Please End The Gridlock: The Mortgage Bankers Association (MBA) is calling for the creation of a National Housing Director after the election to focus on housing policies and alleviate contradictory rules among different agencies. Its goal is to end the housing market gridlock that makes it difficult for young buyers to become homeowners.

Top Stock Pick: Goldman Sachs released its “conviction list” for November and among its top picks was Meritage Homes Corporation (NYSE: MTH), a homebuilder in the Southeast and Far West that specializes in affordable homes. 

Daughter getting married? Buying a yacht? Exactly why did Director Jack Corrigan of American Homes 4 Rent Class A (NYSE: AMH) sell 100,000 shares of AMH common stock on November 5 with a total value of $3,519,450? Poor Jack, the next day AMH rebounded over 2%. And oops, Goldman Sachs initiated a Buy rating on AMH in early September, just as AMH was about 16% higher than its present price.

Marjorie’s Profitable Premonition: On Election Day, Congresswoman Marjorie Taylor Greene (R-GA) disclosed several stock trades, buying Apple, Meta, Tesla and several other stocks ahead of the Trump victory. Nancy Pelosi already has the Series Portfolios Trust Unusual Whales Subversive Democratic Trading ETF (NYSE: NANC) that tracks her trades, so perhaps Congresswoman Taylor will also have one soon.

BEFORE YOU GO

Be sure to check out our other newsletters:

Ring The Bell: Created for market enthusiasts by market enthusiasts, this twice-daily newsletter delivers top stories, fast movers, and hot trade ideas straight to your inbox. Subscribe here.

Future Finance: Where fintech, crypto, and the future of finance collide. Future Finance is a perfect lunch read packed with quick bites for industry enthusiasts. Subscribe here.

Cannabis Daily: A must-read daily briefing for cannabis investors, operators, and enthusiasts. Join our list of industry veterans to jump-start your morning. Subscribe here.

Advisor: Tailor-made for Financial Advisors, this weekly newsletter has industry-specific insights, analysis, and news. Subscribe here.