- Earnings season is arriving for U.S. real estate investment trusts - and with the cooling off of the reopening trade, BofA is starting to turn its attention to growth drivers for 2022 and beyond.
- The reopening trade has been "shaky" over the past 30 days, and BofA thinks the debate over REITs with secular growth drivers vs. those with long-term structural impairment issues will be a key discussion point for Q1 reporting season - "more important than beats and possibly even raises."
- Those raises may be in short supply in REITs, it notes, but on the other hand: The bottom end of guidance ranges reflected expectations for a slower vaccine rollout than has panned out. Still, it doesn't see guidance changes as a key catalyst in the sector this go-round.
- Using that lens, it's going sector by sector among REITs to see what to expect. In Data Centers, BofA expects 2021 guidance is back-end loaded, and so its estimates are largely below Street level (for key metrics like leasing, renewal leasing spreads, churn and FFO/share). It's looking for strong leasing funnel commentary, along with higher growth in EMEA and APAC.
- Guidance was disappointing for Digital Realty (NYSE:DLR) and CyrusOne (NASDAQ:CONE), it says, and notes call volume has been heaviest in Iron Mountain (NYSE:IRM), Equinix (NASDAQ:EQIX) and Digital Realty.
- In Healthcare, BofA isn't expecting guidance increases from Healthpeak Properties (NYSE:PEAK) or Medical Properties Trust (NYSE:MPW), though some more color may come from Healthpeak. The bank recently went Overweight Healthcare, updating Healthpeak and Welltower (NYSE:WELL) to Buy.
- After the pandemic, BofA expects an influx of capital funding life science research - "extremely supportive of demand for assets." Best positioned to capitalize on that secular theme are Healthpeak and Alexandria Real Estate Equities (NYSE:ARE).
- In Industrial, BofA is above the Street for 2021 and is looking to a positive first quarter. It's listening for the impact of higher construction costs on yields, pricing power, re-shoring and infrastructure, and among stocks best positioned to bump guidance: Duke Realty (NYSE:DRE), EastGroup Properties (NYSE:EGP), Prologis (NYSE:PLD) and Rexford Industrial Realty (NYSE:REXR).
- For Net Lease names, BofA believes it's too early for most to offer guidance bumps, though a likely exception (due to conservative outlook) is National Retail Properties (NYSE:NNN). It recently upgraded that name, EPR Properties and Essential Properties Realty Trust to Buy from Underperform, and cut W.P. Carey to Underperform from Buy. (EPR, EPRT, WPC)
- In Office REITs, BofA is expecting the market to look past Q1 results and "focus on leasing pipelines, work from home, net effective rents, asset price discovery and incremental guidance." The quarter should highlight the continued strength of life science (Alexandria Real Estate Equities, among its top picks) and defense-IT (Corporate Office Properties Trust (NYSE:OFC)).
- For Residential, it sees mostly meets/beats coming on the better-than-expected vaccine rollout, as well as young talent returning to coastal markets sooner than thought. It's expecting more detail on external growth by Manufactured Housing (including color on the Prime Marina acquisition at Sun Communities (NYSE:SUI)) and Single Family Rental (where American Homes 4 Rent (NYSE:AMH) and Invitation Homes (NYSE:INVH)have shown optimism on accelerating 2021 growth).
- In Retail, key differentiators will be internal growth metrics - specifically leasing spreads and occupancy levels. It has Buy ratings on essential-focused and grocery anchored strips: Brixmor Property Group (NYSE:BRX), Kimco Realty (NYSE:KIM), Regency Centers (NASDAQ:REG), and Retail Opportunity Investments (NASDAQ:ROIC).
- And for Self Storage, it sees demand remaining strong with cyclical and secular drivers of growth. Extra Space Storage's (NYSE:EXR) update offered continued improvement in occupancy for Q1, and discounts trending lower. Meanwhile, storage portfolios are still trading with cap rates compressing, as evidenced by Public Storage's (NYSE:PSA) recent acquisition of ezStorage.