Real estate investment trusts (REITs) have generally performed well in recent fourth-quarter earnings reports, often matching or beating analyst estimates in funds from operations (FFO) and revenue.
But some REITs have underperformed expectations, either in fourth-quarter metrics and/or full-year 2024 forward guidance. Share prices usually fall when this happens, and often analysts will downgrade the stocks as well, lowering prices even further.
Take a look at four REITs that disappointed Wall Street recently with fourth-quarter operating results that failed to meet expectations and have received analyst downgrades. All four have suffered share price losses as a result.
Hudson Pacific Properties Inc. HPP is a Los Angeles-based office REIT with 48 office properties and six motion picture studios with an emphasis on centers of innovation for media and tech companies in California, Washington state and Vancouver, British Columbia. Its end-of-fourth-quarter office occupancy rate was 80.8%, down from 88% at the end of 2022.
On Feb. 12, Hudson Pacific Properties reported its fourth-quarter operating results. FFO of $0.14 missed the consensus estimate of $0.15 and was well below FFO in the fourth quarter of 2022 of $0.49 per share. FFO has fallen in five consecutive quarters since then. Revenue of $223.42 million missed the consensus estimate of $223.93 million and was 17.2% lower than revenue of $269.93 million in the fourth quarter of 2022.
On Feb. 20, Wedbush Securities analyst Richard Anderson downgraded Hudson Pacific Properties from Outperform to Neutral and lowered the price target from $11 to $7.50.
Since Feb. 12, the share price has fallen from about 11%, from $8.17 to $7.25.
Healthcare Realty Trust Inc. HR is a Nashville, Tennessee-based healthcare REIT with 688 properties covering 40.3 million square feet across 35 states. It was established in 1992 with 21 facilities and has evolved into a delivery model in which 72% of its properties are multitenant medical outpatient service buildings on the campus of hospitals or other types of healthcare facilities. Its third-quarter occupancy rate was 85.2%.
In 2022, Healthcare Realty merged with Healthcare Trust of America in an $18 billion deal and became Healthcare Realty Trust. The top locations of its properties include Dallas, Seattle and Houston, Texas.
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On Feb. 16, Healthcare Realty Trust reported its fourth-quarter operating results. FFO of $0.39 was in line with estimates but fell from $0.42 in the same period last year. Revenue of $330.44 million missed the estimates of $334.6 million and was below revenue of $338.06 in the fourth quarter of 2022.
Additionally, the full-year 2024 FFO of $1.52-$1.58 per share, with a midpoint of $1.55 was below analysts' estimates of $1.57.
On Feb. 20, Wedbush analyst Richard Anderson downgraded Healthcare Realty Trust from Outperform to Neutral and lowered the price target from $19 to $15.
Healthcare Realty shares have fallen from $15.59 preearnings announcement to a recent closing price of $14.36.
Digital Realty Trust Inc. DLR is an Austin, Texas-based Data Center REIT with over 218,000 cross-connects in 300 facilities across 23 countries. It has over 5,000 customers, including stalwart tech companies such as Nvidia Corp. NVDA, Oracle Corp. ORCL and IBM IBM.
On Feb. 15, Digital Realty Trust reported fourth-quarter 2023 operating results. FFO of $1.63 per share missed the consensus estimate of $1.64 per share and was below FFO of $1.65 in the fourth quarter of 2022. One positive was that revenue of $1.4 billion beat the estimate of $1.39 billion and was 13.54% better than revenue of $1.23 billion in the fourth quarter of 2022.
Full-year 2024 guidance of core FFO of $6.60-$6.75 was above 2023's $6.59 but missed analysts' estimates of $6.83. Full-year 2024 revenue of $5.5 billion- $5.65 billion also missed the Street's expectations of $5.76 billion.
The following day, Scotiabank analyst Maher Yaghi downgraded Digital Realty Trust from Sector Outperform to Sector Perform.
Digital Realty was up 22% over the past six months, but following the report and downgrade, it sold off over 8% from $148.61 to $136.22, with an intraday low of $134.75.
WP Carey Inc. WPC is a New York City-based diversified net-lease REIT, whose single-tenant properties include industrial, warehouse, retail and self-storage units. It was founded in 1973 and recently celebrated its 50th year of investing in properties.
WP Carey has 1,424 net leased properties with approximately 173 million square feet across 26 countries. Its portfolio includes 336 tenants from over 30 industries and an excellent occupancy rate of 98.1%. However, that's down from 99.0% in 2023.
On Feb, 9, WP Carey reported its fourth-quarter operating results. It missed the analysts' estimates for both adjusted FFO (AFFO) and revenue. AFFO of $1.19 per share and revenue of $410.38 million fell short of the expectations for $1.21 per share and $422.12 million. AFFO was also below $1.29 in the same period a year ago, while revenue increased from $402.6 million in the fourth quarter of 2022.
WP Carey also announced its full-year 2024 AFFO per share of $4.65-$4.75, with a midpoint of $4.70. The Street was expecting $4.72.
After the results were announced, the stock sold off, with the share price falling from the preannouncement closing of $61.35 to a low of $54.72 within three days. The price then rebounded to close at $57.40 on Feb. 16.
On Feb. 12, Raymond James analyst RJ Milligan downgraded WP Carey from Outperform to Market Perform.
Many investors lost faith in WP Carey after it announced a spinoff and sale of its office properties as well as a shocking dividend cut in September. Shares have fallen almost 30% since the high of $81.54 in July 2022.
It could be a while before these four REITs make any substantial gains.
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