Volatile earnings week

REIT earnings season kicked off and has given us a glimpse into the fundamentals of various REIT sectors.  Despite the price action, fundamentals are generally strong with a couple exceptions.

Industrial

Prologis and Duke had rather impressive results which portends strength across the industrial REIT sector.  Importantly, the USA is outperforming the rest of the world which bodes well for our small cap industrial REITs that are exclusively in the USA.

Timber

As touched on in our trade alert, Weyerhaeuser had a rough report featuring a miss and lowered guidance that all seemed to be predicated on headwinds for the entire sector.  It seems to be a perfect storm of difficulty with rising interest rates hurting homebuilder appetite for construction and therefore their demand for lumber.  Additionally, tariffs from China are hurting log exports.  Thus, we have reduced demand abroad and at home.

Retail

Simon Properties functions as the bellweather of retail REITs and its report was impressive.  They are continuing to grow the bottom line through the Sears bankruptcy issues and reduced occupancy cost for their retailers indicates market leasing rates will improve.

Data centers

Demand for data centers is still growing at a rapid clip, but the benefits to incumbents are mitigated by heavy supply.  There seem to be minimal barriers to entry which allows rampant new construction including a massive build in Northern Virginia from Digital Realty.  The numbers and growth look great for now, but I still worry about the future of the sector, especially given the high multiples.

Manufactured housing

Sun Communities reported healthy same store NOI growth, demonstrating continued demand for the asset class.  While they operated in different submarkets than UMH, we are anticipating good things from UMH’s report next week.

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