Despite Plush 1st Quarter, REITS Cautious on CRE

Keefe Bruyette & Woods released its first-quarter scorecard for equity REITs, which includes a snapshot look at first-quarter earnings results for the 25 equity REITs/REOCs that have already reported across various property sectors.

In its report, KBW reflects a belief that the realities of the slowing economy may be starting to creep into companies' more cautious outlooks for the balance of the year.

According to the report, after adjusting for non-recurring one-time items, of the 25 companies surveyed, 14 exceeded consensus (with Starwood Hotels & Resorts Worldwide seeing the highest leap above consensus at 76%), four (Developers Diversified Realty Corp., Omega Healthcare Investors Inc., LaSalle Hotel Properties and Marriott International Inc.) met consensus and six missed consensus expectations (with PotlatchCorp. seeing the biggest drop from consensus at 9.1%) for the first quarter.

One REIT, Universal Health Realty Income Trust, had no consensus estimates.

Of the companies that updated 2008 guidance with first-quarter earnings, two lowered prior 2008 guidance (by an average of 1% per company), seven companies raised prior 2008 guidance (by an average of 3.4% per company) and 12 companies kept 2008 guidance unchanged. Only four of the 14 companies that beat first-quarter consensus upped previous 2008 guidance.

The industrial sector has had the most companies report earnings thus far. Of the five industrial REITs that have reported first-quarter earnings, four have reported operating results that were better than consensus. Only First Potomac reported first-quarter operating results below consensus.

However, including a $0.09 per share gain from debt extinguishment, First Potomac's results were higher than consensus. Average first-quarter same store NOI growth for these five industrial REITs is 2.6%, with only First Potomac reporting negative same store NOI growth.

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