Back to top

Image: Bigstock

What Awaits REITs in Q2 Earnings? ACC, AVB, ADC, BRX

Read MoreHide Full Article

Monday marks the beginning of one of the busiest weeks this earnings season for the real estate investment trust (REIT) industry. Companies like American Campus Communities, Inc. , Avalonbay Communities, Inc. (AVB - Free Report) , Agree Realty Corp. (ADC - Free Report) and Brixmor Property Group, Inc. (BRX - Free Report) are slated to report their earnings on that day.

No doubt, the sentiments have so far been positive with the top-notch REITs like Prologis, Inc. (PLD - Free Report) and SL Green Realty Corp. (SLG - Free Report) coming up with better-than-expected performances. In fact, Prologis came up with a positive surprise of 1.69% in Q2 backed by an escalated warehouse demand. Its occupancy and customer retention remained elevated while leasing volumes, rent change on rollover and same store NOI also increased. SL Green, too, followed the trend, posting a positive surprise of 7.23% in the latest reported quarter. The solid performance by the office REIT was aided by a rise in combined same-store NOI.    

But this does not guarantee a robust performance by rest of the REITs as well as they cater to different asset classes. Therefore, despite broadly benefiting from the low-rate environment for their high debt-dependence nature, individual market dynamics of the underlying asset category play a pivotal role in defining their performance.

While CBRE Group’s study of retail, industrial and office-market fundamentals in Q2 have revealed stability and strength and the early end-of-quarter apartment numbers from Axiometrics show that rent growth was substantially stronger in the second quarter, not all REITs are equally poised to surpass this season.

Therefore, we relied on the Zacks methodology, combining a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive Earnings ESP, to predict the chances of a beat this quarter.

Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Research shows that with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70% for the stocks.

Let’s now check how the following four companies are expected to perform, when they report their second-quarter 2016 results on Jul 25.

Avalonbay Communities, a residential REIT, has a Zacks Earnings ESP of -2.89% and a Zacks Rank #2. Despite a favorable Zacks Rank, our surprise prediction gets difficult as a negative ESP lowers the predictive power.

AVALONBAY CMMTY Price and EPS Surprise

AVALONBAY CMMTY Price and EPS Surprise | AVALONBAY CMMTY Quote

Avalonbay is expected to gain on improving demand from household formation and favorable demographics. But completion of a number of projects in its markets, which would lead to higher supply, raises our concern. This is because higher supply usually curtails the landlord’s capability to demand more rents and also brings down absorption. (Read more: Will AvalonBay Stock Suffer Post Q2 Earnings Results?)

American Campus Communities deals in the acquisition, design, finance, development, construction management, leasing and management of student-housing properties. The company has an Earnings ESP of 1.89% and a Zacks Rank #2. Notably, a positive reading for the Zacks Earnings ESP has proven to be very powerful in producing both positive surprises and outperforming the market.

AMER CAMPUS CTY Price and EPS Surprise

AMER CAMPUS CTY Price and EPS Surprise | AMER CAMPUS CTY Quote

Agree Realty is focused on the development and acquisition of net lease retail properties throughout the United States. The company has a Zacks Earnings ESP of 0.00% and a Zacks Rank #3. Despite a favorable Zacks Rank, the zero ESP makes surprise prediction difficult.

AGREE RLTY CORP Price and EPS Surprise

AGREE RLTY CORP Price and EPS Surprise | AGREE RLTY CORP Quote

Brixmor Property owns and operates a portfolio of grocery-anchored community and neighborhood shopping centers primarily in the United States. The company has an Earnings ESP of 0.00% and a Zacks Rank #3. Our proven model does not conclusively show that Brixmor Property is likely to post a positive surprise this quarter as it does not have the right combination of rank and ESP.

BRIXMOR PPTY GP Price and EPS Surprise

BRIXMOR PPTY GP Price and EPS Surprise | BRIXMOR PPTY GP Quote

Stay tuned! Check back on our full write-up on earnings releases of these stocks.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Published in