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Bet on These 4 REITs to Outshine This Earnings Season
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The second-quarter reporting cycle is underway, and instead of focusing on big profits and huge surprises of companies that have already released their quarterly numbers, investing in the ones which are yet to report and poised to beat can fetch you more gains. This is because earnings beat serves as a catalyst, raises investors’ confidence in a stock and results in further price appreciation.
Moreover, rather than fretting too much on rate hike concerns, focusing on REITs will be a smart move since prospects of a number of this special hybrid asset class are getting a boost with growth in economy and job market gains translating into greater demand for real estate and resulting in higher occupancy levels.
Particularly, per a study by the commercial real estate services firm — CBRE Group Inc. (CBRE - Free Report) — availability rate for the U.S. industrial real estate market in the April-June quarter shrunk 10 basis points (bps) to 7.2%, denoting the lowest level since Q4 2000.
Additionally, with demand surpassing new supply, net asking rents inched up 1.7% in Q2 to $7.11 per square feet — marking the highest level since 1989. High consumer spending, strengthening e-commerce market, and a healthy manufacturing environment amid recovering economy and job market are spurring demand for this real estate category.
Also, despite several preeminent retail bankruptcy filings and record-high defaults by retail corporates, recent data form Reis shows that the national retail vacancy rate marginally increased to 10.2% in second-quarter 2018 — underlining store closures of bankrupt toy retailer, Toys “R” Us Inc. — while national average asking rents edged 0.2% higher.
Admittedly, though store closures and retailer bankruptcies continue to rule the market, retail landlords are now countering this challenge. Retail REITs are now avoiding heavy dependence on apparel and accessories, and instead expanding their dining options, opening movie theaters, offering recreational facilities and opening fitness centers, in particular, as these traffic are Internet resistant.
Per the latest report from the real estate technology and analytics firm, RealPage, Inc. , rent growth in the U.S. apartment market is slowing down, with U.S. apartment rents rising at an annual pace of just 2.3%, as of mid-2018. Nevertheless, a mid-2018 occupancy level of 95.0% is still healthy and reflects solid demand despite high deliveries in the market.
In the office sector, per a CBRE Group data, for the first time in four quarters, vacancy rate contracted 10 bps to 13.0% in Q2. However, there is a slowdown in gross asking rent growth, with a demand-and-supply balance. Average rent inched up 0.4% sequentially and 1.3% year over year.
Furthermore, improved business travel demand with rising short-term group and transient bookings, higher group spends, and strong demand from the leisure division signal brighter prospects for hotel REITs.
In addition to the above, not only have the REITs made their balance sheets less leveraged, the companies have locked in the low rates by borrowing at a fixed rate and extending the average maturity of their debt outstanding. Down the line, this financial flexibility will be encouraging for REITs’ operational efficiencies.
The Zacks Methodology
However, despite the above-mentioned drivers, choosing the right stock could be quite difficult unless one knows the proper method. To make the task simple we rely 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.
Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. And research shows that for stocks with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are four REITs that have the right combination of elements to deliver a positive surprise this season:
Essex Property Trust, Inc. (ESS - Free Report) carries a Zacks Rank of 2 and has an Earnings ESP of +1.32%. The Zacks Consensus Estimate for Q2 funds from operations (FFO) per share is pegged at $3.10, which denotes expected year-over-year growth of 4.4%. The stock delivered positive surprises in three of the trailing four quarters, with an average beat of around 0.93%.
Headquartered at San Mateo, CA, Essex Property Trust, Inc. is a residential REIT engaged in the acquisition, development, redevelopment and management of multi-family residential properties in supply constrained markets. Specifically, the company enjoys concentration of assets in select markets along the West Coast.
Essex Property is slated to report quarterly results on Aug 1.
American Assets Trust, Inc. (AAT - Free Report) has a Zacks Rank #2 and an Earnings ESP of +1.96%. The Zacks Consensus Estimate for the to-be-reported quarter FFO per share is pegged at 51 cents, denoting a year-over-year projected increase of roughly 4.1%.
San Diego, CA-based American Assets Trust is a REIT engaged in acquisition, improvement, development and management of retail, office and residential properties throughout the United States.
American Assets Trust is set to report results on Jul 31.
Pebblebrook Hotel Trust (PEB - Free Report) carries a Zacks Rank of 3 and has an Earnings ESP of +4.68%. The Zacks Consensus Estimate for the quarter’s FFO per share is pegged at 73 cents. The company has been a steady performer, having exceeded the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 10.04%.
Bethesda, MD-based Pebblebrook Hotel Trust is a hotel REIT focusing on opportunistic acquisitions and investments in mainly upper upscale, full-service hotels located in urban markets in major gateway cities in the United States.
Pebblebrook Hotel Trust is scheduled to release its quarterly numbers on Jul 25.
Terreno Realty Corp. (TRNO - Free Report) is another Zacks #3 Ranked company and has an Earnings ESP of +0.53%. The Zacks Consensus Estimate for the quarter’s FFO per share is pegged at 31 cents, indicating 14.8% projected year-over-year growth. The company has an expected long-term growth rate of 10%. Also, the Zacks Consensus Estimate for second-quarter FFO per share has been revised 3.3% upward over the last 90 days.
San Francisco, CA-based Terreno Realty is an industrial REIT engaged in the acquisition, ownership and operation of industrial real estate in six major coastal U.S. markets — Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami, and Washington, DC.
Terreno Realty is expected to report quarterly figures around Aug 1.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Bet on These 4 REITs to Outshine This Earnings Season
The second-quarter reporting cycle is underway, and instead of focusing on big profits and huge surprises of companies that have already released their quarterly numbers, investing in the ones which are yet to report and poised to beat can fetch you more gains. This is because earnings beat serves as a catalyst, raises investors’ confidence in a stock and results in further price appreciation.
Moreover, rather than fretting too much on rate hike concerns, focusing on REITs will be a smart move since prospects of a number of this special hybrid asset class are getting a boost with growth in economy and job market gains translating into greater demand for real estate and resulting in higher occupancy levels.
Particularly, per a study by the commercial real estate services firm — CBRE Group Inc. (CBRE - Free Report) — availability rate for the U.S. industrial real estate market in the April-June quarter shrunk 10 basis points (bps) to 7.2%, denoting the lowest level since Q4 2000.
Additionally, with demand surpassing new supply, net asking rents inched up 1.7% in Q2 to $7.11 per square feet — marking the highest level since 1989. High consumer spending, strengthening e-commerce market, and a healthy manufacturing environment amid recovering economy and job market are spurring demand for this real estate category.
Also, despite several preeminent retail bankruptcy filings and record-high defaults by retail corporates, recent data form Reis shows that the national retail vacancy rate marginally increased to 10.2% in second-quarter 2018 — underlining store closures of bankrupt toy retailer, Toys “R” Us Inc. — while national average asking rents edged 0.2% higher.
Admittedly, though store closures and retailer bankruptcies continue to rule the market, retail landlords are now countering this challenge. Retail REITs are now avoiding heavy dependence on apparel and accessories, and instead expanding their dining options, opening movie theaters, offering recreational facilities and opening fitness centers, in particular, as these traffic are Internet resistant.
Per the latest report from the real estate technology and analytics firm, RealPage, Inc. , rent growth in the U.S. apartment market is slowing down, with U.S. apartment rents rising at an annual pace of just 2.3%, as of mid-2018. Nevertheless, a mid-2018 occupancy level of 95.0% is still healthy and reflects solid demand despite high deliveries in the market.
In the office sector, per a CBRE Group data, for the first time in four quarters, vacancy rate contracted 10 bps to 13.0% in Q2. However, there is a slowdown in gross asking rent growth, with a demand-and-supply balance. Average rent inched up 0.4% sequentially and 1.3% year over year.
Furthermore, improved business travel demand with rising short-term group and transient bookings, higher group spends, and strong demand from the leisure division signal brighter prospects for hotel REITs.
In addition to the above, not only have the REITs made their balance sheets less leveraged, the companies have locked in the low rates by borrowing at a fixed rate and extending the average maturity of their debt outstanding. Down the line, this financial flexibility will be encouraging for REITs’ operational efficiencies.
The Zacks Methodology
However, despite the above-mentioned drivers, choosing the right stock could be quite difficult unless one knows the proper method. To make the task simple we rely 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.
Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. And research shows that for stocks with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are four REITs that have the right combination of elements to deliver a positive surprise this season:
Essex Property Trust, Inc. (ESS - Free Report) carries a Zacks Rank of 2 and has an Earnings ESP of +1.32%. The Zacks Consensus Estimate for Q2 funds from operations (FFO) per share is pegged at $3.10, which denotes expected year-over-year growth of 4.4%. The stock delivered positive surprises in three of the trailing four quarters, with an average beat of around 0.93%.
Headquartered at San Mateo, CA, Essex Property Trust, Inc. is a residential REIT engaged in the acquisition, development, redevelopment and management of multi-family residential properties in supply constrained markets. Specifically, the company enjoys concentration of assets in select markets along the West Coast.
Essex Property is slated to report quarterly results on Aug 1.
American Assets Trust, Inc. (AAT - Free Report) has a Zacks Rank #2 and an Earnings ESP of +1.96%. The Zacks Consensus Estimate for the to-be-reported quarter FFO per share is pegged at 51 cents, denoting a year-over-year projected increase of roughly 4.1%.
San Diego, CA-based American Assets Trust is a REIT engaged in acquisition, improvement, development and management of retail, office and residential properties throughout the United States.
American Assets Trust is set to report results on Jul 31.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Pebblebrook Hotel Trust (PEB - Free Report) carries a Zacks Rank of 3 and has an Earnings ESP of +4.68%. The Zacks Consensus Estimate for the quarter’s FFO per share is pegged at 73 cents. The company has been a steady performer, having exceeded the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 10.04%.
Bethesda, MD-based Pebblebrook Hotel Trust is a hotel REIT focusing on opportunistic acquisitions and investments in mainly upper upscale, full-service hotels located in urban markets in major gateway cities in the United States.
Pebblebrook Hotel Trust is scheduled to release its quarterly numbers on Jul 25.
Terreno Realty Corp. (TRNO - Free Report) is another Zacks #3 Ranked company and has an Earnings ESP of +0.53%. The Zacks Consensus Estimate for the quarter’s FFO per share is pegged at 31 cents, indicating 14.8% projected year-over-year growth. The company has an expected long-term growth rate of 10%. Also, the Zacks Consensus Estimate for second-quarter FFO per share has been revised 3.3% upward over the last 90 days.
San Francisco, CA-based Terreno Realty is an industrial REIT engaged in the acquisition, ownership and operation of industrial real estate in six major coastal U.S. markets — Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami, and Washington, DC.
Terreno Realty is expected to report quarterly figures around Aug 1.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>