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REITs' Q4 Earnings Lined Up for Feb 11: DLR, REG & More

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We are in the middle of another busy week of the current reporting cycle and the real estate investment trust (REIT) space is buzzing with activity, with a number of earnings releases lined up for Feb 11. Among others, data-center REIT Digital Realty Trust, Inc. (DLR - Free Report) , and retail REITs like Regency Centers Corporation (REG - Free Report) , Kimco Realty Corporation (KIM - Free Report) and Federal Realty Investment Trust (FRT - Free Report) will release their quarterly numbers on Thursday.

REITs invest in all types of properties, from residential, industrial, offices, malls to hospitals, hotels and data centers and several others. Moreover, the pandemic-induced economic disruption and its impact have widely varied across different property types. Therefore, underlying asset categories as well as location of properties play a crucial role in determining REITs’ performance.

Let’s analyze the factors that are likely to have played key roles in the data center and retail real estate markets during the fourth quarter.

The Q4 Picture

Data-center REITs are anticipated to have continued benefiting from the growing IT infrastructure market during the quarter in discussion. At the onset of the pandemic, remote-working needs forced and accelerated digital transformation. This, along with an increasing pace of cloud adoption, is likely to have spurred data-center demand.

Moreover, there has been a higher need for digital transformations from federal entities, while new technologies like 5G and augmented reality have been creating additional opportunities for edge deployments and data-center operators.

In addition, the retail real estate market had already been battling dwindling traffic issues, store closures and retailer bankruptcies, and the pandemic has only further aggravated its woes. However, per a report from CBRE Group (CBRE - Free Report) , solid holiday spending helped total retail sales in the fourth quarter, which remained above the first-quarter 2020 pre-pandemic level. In fact, the immunization process roll-out and the additional fiscal stimulus have boosted consumer sentiment.

Retail sales grew 3.9% year on year during the December-end quarter to $1.64 trillion. Though non-store retailers have been witnessing decent sales activity, this holiday season saw higher-than-anticipated physical-store shopping, which is encouraging for the retail real estate market.

The total retail availability rate remained sequentially unchanged at 6.6% in the fourth quarter but expanded 40 basis points year on year thanks to the pandemic. Particularly, the power center segment registered the largest year-over-year increase. Apart from this, rates have varied widely in terms of geography, with the sub-urban areas and tier II cities outperforming higher density urban areas.

Net absorption of 7.1 million square feet during the October-December period marked the first quarterly gain since the outbreak of the global health crisis in the January-March quarter of 2020. Except power centers, every property type recorded positive net absorption. Amid significant e-commerce penetration and store closures, power centers have been affected as well. However, total retail completions plummeted nearly 60% year on year during the to-be-reported quarter due to the COVID-associated restrictions.

Let’s see what’s in the offing for the four above-mentioned REITs, which are scheduled to report fourth-quarter numbers tomorrow.

Digital Realty will release results after the closing bell. Our proven model does not conclusively predict a positive surprise in terms of funds from operations (FFO) per share for the data-center REIT this season.

The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here as Digital Realty currently carries a Zacks Rank of 3 and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Over the trailing four quarters, the company outpaced the Zacks Consensus Estimate on three occasions and missed in the other, the average beat being 2.50%.

The Zacks Consensus Estimate for quarterly total revenues is $1.03 billion, indicating a 30.3% year-over-year jump. The consensus mark for the fourth-quarter FFO per share has moved down a cent to $1.52 in a month’s time, reflecting bearish sentiment of analysts. Also, it suggests a year-over-year decline of 6.2%.

Digital Realty is anticipated to have gained from solid fundamentals of the data-center market in the soon-to-be-reported quarter. The full spectrum of data-center solutions across a global platform is likely to have helped the company lure tenants, with several having multiple locations across the portfolio. This is likely to have driven leasing deals and occupancy at the REIT’s data-center facilities. It has also been tapping external growth opportunities through acquisitions. However, given the solid growth prospects in the data-center real estate market, competition has intensified in the company’s markets. This might have resulted in aggressive pricing pressure in the quarter to be reported. (Read More: Digital Realty to Post Q4 Earnings: What to Expect?)

Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote

Regency Centers is scheduled to announce quarterly numbers after the bell. The chances of this retail REIT delivering a FFO beat are low as it carries a Zacks Rank #4 (Sell) and has an Earnings ESP of -1.39%, at present.

In the last four quarters, the company exceeded the Zacks Consensus Estimate on one occasion, met in another and missed in the other two. It has a trailing four-quarter negative surprise of 6.94%, on average.

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $261.3 million, suggesting a year-over-year decline of 6.9%. Additionally, the consensus mark for the quarterly FFO per share has been revised down by 2 cents to 72 cents over the past week, displaying bearish analyst sentiments. It also calls for a 28% year-over-year decline.

While experience-based retail tenants continued to impact retail REITs, Regency’s essential tenancy-oriented centers are likely to have sailed through these testing times. Nonetheless, leasing velocity might have stayed at depressed levels during the fourth quarter due to the pandemic-induced demand drop. Also, a high number of bankruptcies across the retail industry are expected to have dampened base rent growth, in turn, eroding the company’s revenues. Also, during the quarter under review, Regency sold five shopping centers for a total of $77.8 million at the company’s share. (Read more: Here's How Regency is Placed Ahead of Q4 Earnings)

You can see the complete list of today’s Zacks #1 Rank stocks here.

Kimco Realty will announce fourth-quarter figures before the market opens. Our proven model does not conclusively predict a positive surprise in terms of FFO per share for the lodging REIT this time around, as Kimco currently carries a Zacks Rank #4 and has an Earnings ESP of -3.33%.

Kimco beat the Zacks Consensus Estimate in three of the trailing four quarters and missed in the other, the average surprise being 1.52%.

The Zacks Consensus Estimate for Kimco’s quarterly revenues is currently pinned at $267.8 million, calling for a 9.6% decline from the prior-year quarter. In addition, the REIT’s activities during the fourth quarter were inadequate to gain analyst confidence. The Zacks Consensus Estimate of 30 cents for quarterly FFO per share remained unrevised over the past month. The figure also suggests a decline of 18.9%, year over year.

Having a grocery component has been the saving grace of retail REITs amid these uncertain times, and for Kimco, a significant chunk of its annual base rent comes from grocery-anchored centers. Its curbside pick-up program is likely to have aided the REIT’s performance during the period under consideration. Nevertheless, Kimco, too, is not immune to store closures and retailer bankruptcies. Furthermore, rent relief and deferral requests from its tenants might have dampened revenue growth. (Read more: Here's How Kimco is Placed Ahead of Q4 Earnings)

Kimco Realty Corporation Price and EPS Surprise

Kimco Realty Corporation Price and EPS Surprise

Kimco Realty Corporation price-eps-surprise | Kimco Realty Corporation Quote

Federal Realty’s quarterly numbers will be released after the bell. The chances of this retail REIT delivering a FFO beat in the to-be-reported quarter are low as it carries a Zacks Rank of 4 and has an Earnings ESP of 0.01%, at present.

Over the preceding four quarters, it beat estimates on one occasion and missed in the other three, the average negative surprise being 9.44%.

The Zacks Consensus Estimate for quarterly revenues is pegged at $208.9 million, calling for a 12.7% decline from the year-ago period. Also, Federal Realty’s activities during the quarter were inadequate to win analyst confidence. The consensus estimate for the fourth-quarter FFO per share has been revised a cent downward to $1.07 in a week’s time, suggesting a year-over-year plunge of 32.3%.

Federal Realty has also been affected by the choppy retail environment. The secular industry headwinds are expected to have hurt the company’s performance during the to-be-reported quarter as well. Nevertheless, with more reopening of stores, tenants stand in a better position to generate revenues and make rent payments. Thus, pressure on retail landlords might have reduced to some extent and the rent-collection figures are likely to have improved during the October-December period. (Read more: Key Factors to Impact Federal Realty's Q4 Earnings)

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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