Heard On The REITs - Earnings Highlights Week Of November 3rd, 2017

by: The Investment Strategist

CBL was a major drag for the entire retail REIT sector.

Data center and Infrastructure REITs continued their positive performance.

Apartment REITs show resiliency despite a multi-year bull run and plateauing rental rates.

Earnings were generally positive even if some results fell short of analyst expectations. We were particularly impressed with how apartment REITs continue to perform well, and likewise for the data center and infrastructure REITs. Retail REIT stocks were punished somewhat this week after CBL reported worse than expected results even though – as we point out – some retail REITs had improving results compared to last year.

We’ve listed below a few earnings highlights for review.

Select Earnings Highlights

Please note these are highlights and have not been further analyzed beyond announced figures.

  • UDR (UDR) – FFO per share was in-line with last year’s comparable quarter and AFFO was $0.02 higher. It was a much cleaner quarter with no cost of debt extinguishment, incentive plan transitions, legal claims or sales of land that affect Q3 2016. Same-store NOI growth was very strong in the southeast, unfortunately it only makes up 13.3% of the same-store portfolio. FFO guidance was reduced by $0.01, while AFFO and FFOA guidance was increased by $0.01, as was SS revenue growth (+7.5bps), expense growth (35bps), and NOI growth (+2.5bps).
  • SBA Communications (SBAC) – increased its full year outlook driven by an increase in 3Q revenue of 5.5%. AFFO per share increased 14.4% to $1.75 driven by a 5.2% increase in site leasing revenue, 6.2% increase in tower cash flow, and a 9.5% increase in sit development revenue. As of the end of the quarter, SBAC owned almost 27,000 communication sites, of which 16,000 are located in the U.S.
  • Macerich (MAC) – reported a decrease in FFO from $145MM or $0.96 per share compared to $160MM or $1.04 per share in 3Q 2016. Despite increases in annual sales of 5.3% to $659 per square foot, releasing spreads of 15%, and average rent increases of 4.8%, mall occupancy declined from 95.3% to 94.3% and the company continued to sell non-core assets. Guidance was reaffirmed.
  • EdR (EDR) – Core funds from operations increased 11.7% to $21.7MM and CFFO per share improved 11.5% to $0.29 per share. The same community portfolio opened the lease term 95.2% (120bps lower than prior year) occupied at a growth rate of 3%. Moodys upgraded the senior unsecured debt and shelf ratings from Baa3 to Baa2 and a stable outlook. Guidance for Core FFO was reduced from $1.90-$2.00 to $1.88-$1.92, driven by acquisition/disposition activity
  • AvalonBay Communities (AVB) – FFO increased by 10.9% to $2.34 from $2.11 in the prior year period. Core FFO increased 5.8% to $2.19 from $2.07. Those results beat guidance provided by the company back in August. For FFO, the positive impact was due to development and existing community NOI, reduction in G&A expense, joint venture income, and business interruption insurance proceeds. For Core FFO, the better than expected results were due to increases in NOI and reduction in G&A. We have been surprised with the longevity of the Apartment REIT surge – thinking that homebuying would eventually cause rental rates to plateau and demand to slow. With housing inventory low and affordability still an issue, Apartment REITs still seem to have some upside.
  • Alexandria Real Estate (ARE) – increased its dividend by 8% to $0.86 on the back of a 23.9% increase in revenue from the comparable quarter last year. Rental rate increases were north of 24%!
  • Vornado Realty Trust (VNO) – FFO per share declined from $1.19 per share to $0.52 per share in comparable quarters but Adjusted FFO increased from $0.93 per share to $0.99 per share. Comparable period results are messy. In 3Q 2016, the company had a spin off that increased FFO by 61MM while this past quarter, it took a charge of $53.6MM for JBG Smith properties as a discontinued operation. It also had a $44.5MM impairment for its investment in Pennsylvania REIT. Adjusting for these items results in the $0.06 improvement in AFFO mentioned above. Revenues did increase from $502MM to $529MM.
  • Ramco Gershenson Properties (RPT) – positive tone out of the conference call but mixed results. Operating FFO was flat compared to the same period in 2016 despite an increase in same property NOI growth of 1.4%. It also sold $98MM in non-core properties while portfolio leased occupancy declined from 94.2% to 93%. Guidance was narrowed to $1.35-$1.37 from $1.34-$1.38.
  • Retail Properties of America (RPAI) – FFO declined to $0.51 per share compared to $0.91 per share in the comparable period, while same store NOI increased by 1%. The company continues its disposition strategy with another $228MM of dispositions this quarter. YTD, dispositions totaled $1.1 billion. Cash leasing spreads on new leases were 19.6% and 6.7% on renewals. The company raised Operating FFO guidance to $1.03-$1.05 from $1.00-$1.05 based on increased same store NOI of 1.75% to 2.25%, increasing dispositions, and decreases in G&A expenses.
  • Gladstone Commercial Corporation (GOOD) – Core FFO per share increased 9.5% from the prior quarter primarily due to an increase in rental income from acquisitions and decreased admin fees. Occupancy increased to 97.9% from 96.9% in the quarter ending June 30th, 2017. Dividends declared were in-line with the previous quarter.
  • General Growth Properties (GGP) – reported in-line with expectations and slight growth from prior periods. The full year dividend of $0.88 is 10% above 2016. Revenues increased to $364MM from $348MM and expenses declined by $41MM. FFO and FFO per share both increased to $354MM from $336MM and $0.37 per share from $0.35 per share. Don’t let the price decline fool you. It had more to do with CBL dragging the sector down than any fundamental reasons.
  • The GEO Group (GEO) – the company reported in-line with a slight increase in revenue to $566MM from $554MM. FFO declined to $59MM or $0.48 per share from $59MM or $0.53 per share. Updated AFFO guidance was $2.52-$2.54.
  • Franklin Street Properties (FSP) – reported the strongest leasing activity YTD during 3Q 2017 with weighted average GAAP rent of $28.69 per square foot compared to $27.92 as of December 2016.
  • Preferred Apartments Community (APTS) – Like its other Apartment REIT peers APTS reported strong results in 3Q 2017 leading to a dividend of $0.235 per share, a 16% increase from 3Q 2016. Revenues increased almost 40% to $75MM while FFO per share increased 16.1%. Core FFO was flat. Same store revenue was about half of total revenue and same store operating income increased 1.5%.
  • Rayonier (RYN) – strong results across all of the company’s segments. The big drop in operating income was due to a $43MM real estate sale of 18,000 acres in Georgia. Results across the timber segments were solid. Management cited strong demand for exports and a strong pipeline of real estate closings in the 4th quarter that should result in adjusted EBITDA at the high end of prior guidance.
  • Regency Centers (REG) – Same store NOI increased 5% compared to the same period in the prior year and same property portfolio occupancy increased 20bps to 96.1%. Small shop occupancy also increased, by 40bps to 92.5%. Core FFO was $161.7M or $0.95 per share in 3Q2017 compared to $84MM, or $0.81 per share in the same period in 2016. The company also updated FFO guidance from $2.97-$3.03 to $3.00-$3.05. Core FFO guidance was increased from $3.62-$3.68 to $3.66-$3.70. We wrote about this portfolio holding on August 9th. It has provided a return of negative 2.8% since then but we’re sticking with our 4% position.
  • Equinix (EQIX) – Revenues increased 25% and AFFO increased 9% over the previous quarter. The company announced a number of wins in every vertical it operates in. There were 10 new Fortune 500 wins in the enterprise and financial services verticals. Full year guidance is expected to result in a 21% increase year over year. Key customer wins included Alibaba.com (NYSE:BABA), Baidu (NASDAQ:BIDU), Blade, Charter Communications (NASDAQ:CHTR), Netflix (NASDAQ:NFLX), Priceline.com (PCLN), Oracle (NYSE:ORCL), Salesforce.com (NYSE:CRM), SAP (NYSE:SAP), Tencent (OTCPK:TCEHY), and Wal-Mart (NYSE:WMT).
  • PennyMac Mortgage Investment Trust (PMT) – earnings per share declined 49% to $0.20 from the prior quarter on the back of a decline in net investment income of $76MM – down 10% from the prior quarter. Book value also declined to $19.74 per share, down from $20.04, even after the company repurchased 1 million common shares at a cost of $17MM.
  • CorEnergy (CORR) – reported FFO per diluted share of $0.89 and AFFO of $0.90. The company declared a dividend of $0.75 per share and announced its intention to maintain the dividend at $0.75 for the foreseeable future. The parent company of Arc Logistics announced an agreement to be acquired by Zenith Energy. CORR owns approximately 6.6% of the Lightfoot Capital Partners LP and 1.5% of the GP – which are the entities being acquired by Zenith. CORR will receive its pro-rata share of the proceeds, whose fair value was approximately $10.5MM as of September 30th, 2017.
  • Arbor Realty Trust (ABR) – reported net income of $16.4MM, or $0.26 per diluted share compared to $11MM or $0.21 per diluted share in the quarter ended September 30th, 2016. AFFO was $0.25 per share compared to $0.21 per share. The company also announced a dividend of $0.19 per share, a 19% increase from a year ago and 6^ over the prior quarter.
  • CBL Properties (CBL) – reported negative results that caused investors to dump the stock – leading to a price decline of 25%. FFO was $0.50 per diluted share compared to $0.57 in 3Q 2016, same store NOI declined 2.6%, occupancy was 93.1% compared to 93.5%, same-store occupancy was 91.8% compared to 93%. Results were affected by additional bankruptcies, store closures, and rent concessions. Worst of all, renewal leases declined by 16% while stabilized malls had lease declines of almost 14%.

Dividends this Week and Next.

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