REIT earnings exceed expectations

REITs see unexpected boost from malls and storage properties.

According to a recent article in The Wall Street Journal, real estate investment trusts saw robust earnings in the first quarter as the economy slowly improves and landlords raise rents.

While large apartment REITs have seen strong growth, a slowdown is expected as rents rise and more first-time homebuyers seek to finance single-family homes taking advantage of near record low rates for 15 and 30 year mortgages.

"We are moving into a new phase of the multifamily housing cycle, a more typical phase, characterized by higher levels of apartment supply and incrementally greater competition from for-sale housing," David Stockert, chief executive of Post Properties, told The Wall Street Journal. He noted that additional competition will result in "a more sensitive trade-off between pushing rents and sustaining high occupancy."

In a recent National Real Estate Investor article, landlords can enjoy the tight supply for another two quarters – with effective rents climbing 0.5 percent – until almost 100,000 units enter the market and become available during the second half of the year. The multifamily sector absorbed 36,000 units in the first quarter, a figure considered healthy. 

The national vacancy rate fell by 20 basis points, stooping to 4.3 percent in the first quarter. Vacancy rates have dipped by 70 basis points in the last four quarters, the fastest declining vacancy rate than any other commercial real estate sector.

Malls and storage units outperform
As office and apartment landlords experienced slower growth, Malls and storage unit buildings experienced the strongest gains.

"The top-quality malls have continued to do very well despite the fear that everyone is going to be shopping online," Alexander Goldfard, an analyst at Sandler O'Neill, told The Wall Street Journal. "People like to be able to try [clothes] on and see how it looks and most importantly how it fits. It's immediate gratification. People feel great with arms full of bags walking out of the store."

Goldfarb also noted that 40 percent of online purchases are returned and that, for many, malls still offer a social, hands-on experience.

Simon Property Group, the nation's largest REIT, said last month that its cash flow from properties rose to $2.05 a share in the first quarter from $1.82 a share a year ago. Those results toppled analyst expectations of $2.01. Simon, which is comprised of 327 malls, also reported that occupancy rates increased to 94.7 percent (from 93.6 percent), and the base minimum rent was up 3 percent from a year earlier.

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