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3 REITs That Crushed Earnings

Real estate investment trusts (REITs) have enjoyed a bounce-back year in 2021. REITs have produced a more than 20% total return, driven by a significant improvement in their funds from operations (FFO). That was evident during the third quarter as several REITs crushed earnings by delivering much higher than expected FFO per share.

Here's a closer look at three of the biggest pleasant earnings surprises from REITs during the third quarter.

Image source: Getty Images.

Storage demand is through the roof

Extra Space Storage (NYSE: EXR) posted exceptionally third-quarter results. The self-storage REIT grew its core FFO by an eye-popping 41.2% to $1.85 per share, crushing the consensus estimate of $1.71 per share.

Extra Space Storage benefited from the soaring demand for self-storage space during the quarter. That drove occupancy up to 96.7%, an improvement from 95.8% in the year-ago period, enabling the company to increase rental rates. Those two factors helped fuel an 18.4% jump in same-store revenue, while lower costs helped boost same-store net operating income by 27.8% year over year.

The REIT also benefited from the continued expansion of its portfolio. So far this year, it has acquired 32 operating stores and six recently constructed locations for $530.4 million. It bought another 15 operating stores with its joint venture partners for a total of $202.2 million, investing a net $20.2 million. The REIT also added 196 locations to its third-party management platform. This combination of organic and acquired growth is driving robust FFO growth, enabling Extra Space to generate market-crushing total returns of over 80% so far this year.

Data demand continues to grow

Equinix (NASDAQ: EQIX) kept growing in the third quarter. The data center REIT's revenue rose 10% year over year, its 75th consecutive quarter of revenue growth. Meanwhile, its adjusted FFO came in at $6.94 per share, well ahead of the consensus estimate of $6.69 per share.

CEO Charles Meyers commented on what drove the company's stronger-than-expected result. He stated: "The pandemic has triggered an accelerated need to digitize business models in virtually every segment of the economy, and our strong Q3 results are reflective of this increasing demand for digital services. As the world's digital infrastructure company, Equinix remains uniquely positioned to help businesses as they shift toward distributed, hybrid, and multi-cloud as the clear architecture of choice."

The company expects continued growth ahead. It sees its revenue rising 10% to 11% for this year, while AFFO per share should be about 9% to 10% ahead of last year's level. Aside from rising demand at its existing data centers, another growth driver is its recently closed GPX India acquisition and xScale program's $575 million joint venture in Australia.

Retail therapy

Simon Property Group (NYSE: SPG) produced "impressive" third-quarter results, in the words of CEO David Simon. The mall-focused retail REIT posted $3.13 per share of FFO, up 52.7% year over year and crushing the consensus estimate of $2.47 per share.

The CEO also stated, "Demand for our space from a broad spectrum of tenants is growing. Occupancy gains continued, retailer sales accelerated, including our owned brands, and cash flow increased." Because of that strong showing, the REIT increased its full-year guidance and raised its quarterly dividend.

There has been a lot of concern about the future of physical retail due to the pandemic. However, occupancy across the company's malls was strong at 92.8%, up from 91.3% to start the year. Meanwhile, rental rates have held up relatively well at nearly $54 per square foot. Thanks to increasing consumer confidence from vaccines and an improving economy, they're heading back to Simon's malls and spending money. While rising case counts and new variants pose a risk, it's clear that consumers value the experience of shopping in high-quality malls, which bodes well for Simon's future.

A strong quarter for REITs

REITs have rebounded sharply as the economy has recovered from the initial hit from the pandemic. Several are benefiting from strong demand either from accelerating usage because of the pandemic or recovering from last year's low. That's helped drive strong returns for REIT investors, which could continue in the coming quarters, given that demand for many of these property types is showing no signs of slowing down.

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Matthew DiLallo owns shares of Equinix. The Motley Fool owns shares of and recommends Equinix. The Motley Fool has a disclosure policy.


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