The Q2 earnings season is in full swing for the real estate investment trusts (REIT), with several companies in the residential REIT space like Equity Residential (EQR - Free Report) , Select Income REIT and UDR Inc. (UDR - Free Report) slated to report quarterly numbers on Jul 26.
So far, the big names of the broader REIT industry, including Prologis, Inc. (PLD) and SL Green Realty Corp. (SLG) have reported better-than-expected results. However, this does not assure an overall bright picture for the residential REIT industry, as these companies cater to an entirely different class of asset.
In spite of the benefits of a low-rate environment for their high debt-dependence nature, the performance of residential REITs depends largely on the demand-supply dynamics of this market. Therefore, it is imperative to examine the fundamentals of the sector to predict the odds of an earnings beat.
Per the early end-of-quarter apartment numbers given by Axiometrics, as new graduates enter the workforce and start looking for a place to live, along with renter families seeking settlement well ahead of the upcoming school year, rent growth was notably stronger in Q2, with quarterly effective rent growth coming in at 2.3% in the second quarter against 0.5% in the first.
However, delivery of new units in a number of markets moderated the annual effective rent growth rate, that clocked 3.7% in Q2, reflecting a 134-basis-point (bps) decrease from the solid year-ago growth rate of 5.1%.
New York and San Francisco have particularly been experiencing rising supply. This is a major concern as elevated supply of new units usually curtails landlords’ ability to command higher rents, thereby leading to lesser absorption.
Let’s take a look into how these three residential REITs are expected to perform, when they report their second-quarter 2016 results..
UDR has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold). Our proven model does not conclusively show that UDR is likely to beat on earnings this quarter. This is because the company lacks the right combination of the two key ingredients – a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3.
Equity Residential has a Zacks Earnings ESP of -1.30%. The company’s Zacks Rank #4 (Sell) further lowers the predictive power of ESP. In fact, we caution against Sell-rated (Zacks Rank #4 or 5) stocks going into the earnings announcement, especially when they are seeing negative estimate revisions.
Select Income REIT has a Zacks Earnings ESP of 0.00%. The company has a Zacks Rank #2. While a favorable rank increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
Stay tuned! Check back on our full write-up on earnings releases of these stocks.
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It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
The Q2 earnings season is in full swing for the real estate investment trusts (REIT), with several companies in the residential REIT space like Equity Residential (EQR - Free Report) , Select Income REIT and UDR Inc. (UDR - Free Report) slated to report quarterly numbers on Jul 26.
So far, the big names of the broader REIT industry, including Prologis, Inc. (PLD) and SL Green Realty Corp. (SLG) have reported better-than-expected results. However, this does not assure an overall bright picture for the residential REIT industry, as these companies cater to an entirely different class of asset.
In spite of the benefits of a low-rate environment for their high debt-dependence nature, the performance of residential REITs depends largely on the demand-supply dynamics of this market. Therefore, it is imperative to examine the fundamentals of the sector to predict the odds of an earnings beat.
Per the early end-of-quarter apartment numbers given by Axiometrics, as new graduates enter the workforce and start looking for a place to live, along with renter families seeking settlement well ahead of the upcoming school year, rent growth was notably stronger in Q2, with quarterly effective rent growth coming in at 2.3% in the second quarter against 0.5% in the first.
However, delivery of new units in a number of markets moderated the annual effective rent growth rate, that clocked 3.7% in Q2, reflecting a 134-basis-point (bps) decrease from the solid year-ago growth rate of 5.1%.
New York and San Francisco have particularly been experiencing rising supply. This is a major concern as elevated supply of new units usually curtails landlords’ ability to command higher rents, thereby leading to lesser absorption.
Let’s take a look into how these three residential REITs are expected to perform, when they report their second-quarter 2016 results..
UDR has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold). Our proven model does not conclusively show that UDR is likely to beat on earnings this quarter. This is because the company lacks the right combination of the two key ingredients – a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3.
Equity Residential has a Zacks Earnings ESP of -1.30%. The company’s Zacks Rank #4 (Sell) further lowers the predictive power of ESP. In fact, we caution against Sell-rated (Zacks Rank #4 or 5) stocks going into the earnings announcement, especially when they are seeing negative estimate revisions.
Select Income REIT has a Zacks Earnings ESP of 0.00%. The company has a Zacks Rank #2. While a favorable rank increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
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 >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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