Initial Q2 REIT Earnings: A Mixed-Bag of Results Across Subsectors

For months, investors have been trying to forecast the direction of real estate investment trusts (REITs), analyzing various economic forces of inflation, interest rate hikes and the looming possibility of a recession within the next year or two.

This week marks the release of second-quarter 2023 earnings for several bellwether REITs spanning different real estate subsectors, and so far, it's been a mixed bag of results. Investors scrutinize year-over-year changes in earnings — or funds from operations for REITs — and revenue. But stocks can experience significant fluctuations depending on whether they beat or fall short of analyst estimates. And companies that lower forward guidance from previous forecasts can get crushed.

Take a look at some of the initial second-quarter operating results from various REITs and how Wall Street has been reacting to them.

Equity LifeStyle Properties Inc. ELS is a residential REIT that owns and operates manufactured home communities, RV resorts and campgrounds. It owns 450 investment properties throughout North America, including 225 RV resorts, 202 mobile home communities and 23 marinas.

After the bell on July 17, Equity LifeStyle Properties announced its second-quarter operating results. Funds from operations (FFO) of $0.66 was in line with analyst estimates but 2 cents higher than FFO of $0.64 in the second quarter of 2022. Revenue of $370 million missed estimates for $376.33 million but was 1.29% above revenue of $365.31 million in the second quarter of 2022.

Equity LifeStyle Properties also released full-year 2023 guidance on FFO with a range of $2.80 to $2.90 per share. The average analyst's estimate was $2.85.

The day after the release, Equity LifeStyle shares were down about $2 but have bounced back nicely over the past few days.

Equity LifeStyle Properties’ most recent dividend payout was $0.45 per share, putting the REIT’s dividend yield at 2.5%. 

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Prologis Inc. PLD is a San Francisco-based industrial REIT founded in 1983. Prologis has long been a stalwart in the ownership and management of approximately 1.2 billion square feet in 5,500 industrial logistics properties throughout the U.S. and 18 other countries.Its occupancy rate at the end of May was 97.5%.

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On July 18, Prologis announced its second-quarter operating results. FFO of $1.83 was $0.16 better than estimates and up 64.86% from FFO of $1.11 in the second quarter of 2022. Revenue of $1.65 billion missed the estimate of $1.69 billion but was 50.73% higher than revenue of $110 billion in the second quarter of 2022. Prologis also increased its 2023 full-year guidance from $5.42-$5.50 to $5.56-$5.60.

Despite the year-over-year improvements, Wall Street was not happy with the revenue miss and took the stock down about 6% in the first two days following the report. Prior to the earnings announcement, Prologis had run up from $117 to just under $130, so it wasn't that surprising to see a "buy on the rumor, sell on the news" reaction, despite some fairly good FFO and revenue numbers.

Prologis’ most recent dividend was $0.87 per share, putting its yield at 2.83%.

SL Green Realty Corp. SLG is a New York City-based office REIT and the largest office building landlord in New York. As of June 30, SL Green Realty held interests in 60 buildings, totaling 33.1 million square feet. Many income-oriented investors like owning SL Green Realty for its monthly paying dividend.

After the closing bell on July 19, SL Green Realty reported second-quarter operating results. FFO of $1.43 was down 23.53% from FFO of $1.87 in the second quarter of 2022 but beat the estimates by $0.09. Rental revenue of $165.65 million was better than rental revenue of $136.5 million in the second quarter of 2022. Total revenue of $221.07 million was above estimates for $205.97 million.

After running up over 5% the day before earnings were announced, SL Green Realty was down 8% the morning after its results were announced.

SL Green Realty currently has a 9.04% dividend yield. Its most recent dividend payment was $0.27 per share. 

Crown Castle Inc. CCI is a Houston-based specialized REIT focused on owning, operating and long-term leasing of cell towers. Crown Castle owns more than 40,000 cell towers and 85,000 route miles of fiber and has 120,000 small cells in its portfolio.

Crown Castle works with businesses and governments to design and build solutions that meet connectivity needs like wireless coverage and custom fiber optic networks. It has a market cap of $50.84 billion, making it one of the largest REITs in the U.S.

On July 19, Crown Castle reported its second-quarter operating results after the closing bell. FFO of $2.05 was up from $1.80 in the second quarter of 2022 and $0.04 better than analyst estimates. Revenue of $1.87 billion was ahead of estimates for $1.86 billion and was 7.67% higher than revenue of $1.73 billion in the second quarter of 2022.

Crown Castle's full-year 2023 guidance on adjusted funds from operations (AFFO) was a midpoint of $7.54, below its previous guidance of $7.63. Crown Castle also cut its outlook for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by $50 million.

Wall Street focused on the lower guidance numbers and sent Crown Castle down almost 6% in premarket trading.

Crown Castle has a dividend yield of 5.52% with its most recent payout being $1.57 per share. 

Based on the preliminary results, it appears that any REIT that falls short of revenue estimates or provides weaker guidance is likely to experience a decline in share price, regardless of whether FFO exceeds expectations or compares favorably to its second-quarter 2022 figures.

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