The last 18 months have been rough for investors in real estate investment trusts (REITs). Excluding dividends, only 9 out of 187 REITs have been profitable over that time frame. Just as things were beginning to improve post-pandemic, REITs were confronted with the worst inflation in decades and multiple Federal Reserve interest rate hikes to combat that inflation.
While it seems that the Fed may be nearing the end of its long series of interest rate hikes, new recessionary fears have taken hold on Wall Street. While a few sub-sectors such as hotel, diversified and residential REITs have begun to show strength, others such as office and retail REITs have been especially hit hard by these fears.
This week the National Association of Real Estate Investment Trusts (NAREIT), in partnership with the New York Stock Exchange, is holding an investor conference at the New York Hilton Midtown Manhattan in New York City. Over 1,000 real estate and other companies are expected to attend. The conference gives investors the opportunity to meet with management teams from dozens of REITs and get answers to questions concerning the present environment as well as future projections.
Some REITs, such as First Industrial Realty Trust Inc. FR and Caretrust REIT Inc. CTRE, updated investor presentations on company websites ahead of the conference. Several REITs have already given presentations in which CEOs have sought to reassure investors that financials are on the upswing in their companies.
Take a look at a few of the REITs that have given presentations:
Realty Income Corp. O is a San Diego-based, triple-net lease retail REIT with over 12,400 properties around the world. The “Monthly Dividend Company,” as it is widely known, is a member of the S&P 500 and an S&P 500 Dividend Aristocrat, with 635 consecutive monthly dividends paid and 120 dividend increases since 1994. It is one of the most widely held REITs among investors today because of its stability and growth. Since its initial public offering (IPO) in 1994, Realty Income has had a 14.6% compound annual total return.
On June 6, CEO Sumit Roy told investors at the NAREIT conference that Realty Income’s portfolio consists mostly of recession-resilient convenience and grocery stores. Addressing the potential for an economic slowdown, Roy said, “People still need to check out groceries.”
Sumit Roy also noted that between 2018 and 2022, Realty Income’s adjusted funds from operations (AFFO) grew 5% annually despite the COVID-19 pandemic and higher borrowing costs. He further reassured investors that Realty Income is investing in real estate that still has attractive cap rates and that occupancy in its portfolio as of March 31 was 99%.
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Year to date, Realty Income’s total return is negative 3.95%.
Apple Hospitality REIT Inc. APLE is a Richmond, Virginia-based hotel REIT, formed in 2007. Its owns 28,984 rooms in 220 hotels in 87 markets across 37 states. Its portfolio includes 96 Marriotts, 119 Hiltons, four Hyatts and one independent hotel.
On June 6, CEO Justin Knight spoke with investors at the NAREIT conference about Apple Hospitality REIT’s rebound in occupancy from the worst of the COVID-19 pandemic, an improving balance sheet and how artificial intelligence (AI) may impact the hotel industry by making it more efficient.
Knight cited Apple Hospitality REIT’s low debt and leverage as company attributes during rising interest rate periods and reassured investors that “continued strength in leisure demand and increased business travel” has positively impacted Apple Hospitality’s earnings in the first quarter. He added that Apple Hospitality has plenty of funds to continue to underwrite properties in the future.
In recent months, there have been several positive developments for Apple Hospitality. First-quarter FFO of $0.34 beat estimates by a penny and was 21.6% better than FFO of $0.28 in the first quarter of 2022. Revenue of $311.45 million beat the estimates by $16.72 million and was 19.6% above the revenue from the first quarter of 2022.
There have also been insider purchases by two company executives within the last month. Year to date, Apple Hospitality REIT’s total return is 1.61%.
Crown Castle Inc. CCI is a Houston-based specialized REIT that focuses on owning, operating and long-term leasing of cell towers. 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 $55.97 billion, making it one of the largest REITs in the U.S.
Crown Castle was founded in 1994 with a portfolio of 133 cell towers. Less than 30 years later, Crown Castle has over 40,000 towers and 85,000 miles of fiber and 120,000 “small cells” (base stations like 5G that are used to enhance cellular network coverage and capacity) in its portfolio. Most of its towers — 75% — are in the 100 largest areas of the U.S.
On June 6, Chief Financial Officer (CFO) Daniel Schlanger spoke with investors at the NAREIT conference. Schlanger told the audience that Crown Castle has two goals — the first is to grow its dividends per share by around 7% to 8% per year by offering its wireless carrier customers the lowest-cost solution to building out a network.
Crown Castle’s second goal is to grow its revenue on the 40,000 cell tower assets it already owns. Cell tower leasing makes up about 70% of Crown Castle’s revenue.
Schlanger wrapped up the presentation by saying that Crown Castle has a tremendous opportunity in the small cell building area of the business, which he sees growing exponentially over the next decade. Year to date, Crown Castle has a total return of negative 17.18%, so it has not performed well in the present economic environment.
One thing is for sure — executives will always paint the rosiest picture possible of their companies. Whether these presentations succeed in assuaging investor concerns over the economy and company earnings remains to be seen. The NAREIT investor conference continues through June 8.
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