Earnings Season Begins for REITs – July 17, 2023

 For these five REITs and those that will follow them in reporting results, the story will be told by the numbers. Analysts following each individual company will offer projections on what those numbers will be, but those estimates may or may not reflect the actual Q2 picture.   Moreover, analysts can diverge widely on their outlook for each company. Go to Seeking Alpha, and you’ll find contributors characterizing one REIT in particular as “poised for growth” and “a value trap with too much debt.” Those evaluations appeared within a few days of one another, and presumably, both contributors had access to the same fact sets. The REITs that will report Q2 results this week span four sectors: office, industrial, RMBS and net lease. On a sector-by-sector basis, these categories have varied in year-to-date performance and longer-term outlook.   Nonetheless, Fitch Ratings recently reduced its overall 2023 U.S. REIT sector outlook to Deteriorating from Neutral. The downgrade reflected “further tightening of commercial real estate lending conditions stemming from the U.S. banking sector stress, as well as ongoing pressure on valuations and fundamentals from higher interest rates and macroeconomic headwinds, respectively,” according to the rating agency.    Most Fitch-rated REITs have “the capacity to withstand such a slowdown within rating sensitivities,” Fitch observed. “Those with ample dry powder could capitalize on distressed property sales by weaker capitalized players.” On the other hand, Nareit reported earlier this month that the FTSE Nareit All Equity REITs Index posted its strongest monthly performance since January with a total return of 5.4%, while the FTSE EPRA Nareit Global Extended Index rose 3.8% in June. Both indices, though, trailed the broader markets for gains. That said, individual sectors within the indices exceeded the overall averages. Especially salutary was the performance of the office sector, which surged 10.4% in June after declining every month since January.