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4 REITS Likely to Turn Out Winners This Earnings Season

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The first-quarter reporting cycle is underway, and investors can be lured by profits of companies that have already released their quarterly figures. However, rather than adding the stock later to your portfolio, accumulating the ones poised to beat estimates can generate higher gains. This is because an earnings beat usually serves as a catalyst, raising investors’ confidence in a stock and resulting in price appreciation. This is likely to be reflected in the earnings of Equity Residential (EQR - Free Report) , AvalonBay Communities, Inc. (AVB - Free Report) , Retail Opportunity Investments Corp. (ROIC - Free Report) and Acadia Realty Trust (AKR - Free Report) .

Moreover, rather than fretting too much about inflation and rate hikes, focusing on REITs will be a smart move. This is because the prospects of a number of this special hybrid asset class are getting a boost with growth in the economy and job market gains translating into greater demand for real estate and resulting in higher occupancy levels.

For example, for the residential REIT, the first quarter, which is typically a slow leasing period in other years, appears to be a solid one this year, with impressive demand for rental units, due to the pandemic that disrupted seasonal behavior.

Per a report from the real estate technology and analytics firm, RealPage, the U.S. apartment market witnessed a robust demand, with net demand for market-rate apartments aggregating a whopping 712,899 units nationally in the year ending first-quarter 2022. This not only marks an 8% increase from the previous high a quarter earlier but also 76% higher than the pre-pandemic-era highest established back in 2000. There is a strong demand from the young adults who are gaining from tight labor market conditions and record wage growth.

As a result of high demand, apartment occupancy inched up 0.1 percentage point to 97.6% instead of seasonal cooling in the first quarter. Rent growth reached another all-time high with new lease effective asking rents increasing 15.2% year over year through March.

Moreover, the retail real estate market gained strength in the first quarter despite its set of challenges, per a report from Cushman & Wakefield. As the pandemic became less disruptive, the job market turned healthier and wages rose, there was renewed enthusiasm for in-person shopping while e-commerce sales started leveling off.

The national shopping center vacancy rate continued to move lower as leasing demand outstripped move-outs and new construction. In first-quarter 2022, the vacancy rate declined 20 basis points to 6.3%. Also, amid the competitive leasing fundamentals, the retail landlords were able to raise asking rents, which were $22.09 per square foot, up 4.5% from a year earlier and 6.1% higher than two years ago.

The Zacks Methodology

Picking the right stock could be difficult unless one knows the proper method. To make the task simple, we rely on the Zacks methodology, combining a 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 positive surprises this season. Also, the diversification benefits that real estates offer make them prudent investment choices now.

Equity Residential currently carries a Zacks Rank of 3 and has an Earnings ESP of + 0.50% for the quarter under review. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions, the average beat being 4.15%.

In the first quarter, Equity Residential is expected to have benefited from its portfolio diversification in the urban and suburban markets. Improving demand for apartment living will also aid the company. Moreover, a healthy balance sheet helps Equity Residential ride the growth curve. Equity Residential is also banking on technology and organizational capabilities to drive innovation, rent growth and improve the efficiency of its operating platform.

Equity Residential is scheduled to announce first-quarter figures on Apr 26.

The Zacks Consensus Estimate of $658.07 million for quarterly revenues suggests a 10.12% increase year over year. The consensus estimate for quarterly funds from operations (FFO) per share of 80 cents calls for a 17.65% year-over-year rise.

Equity Residential Price and EPS Surprise

Equity Residential Price and EPS Surprise

Equity Residential price-eps-surprise | Equity Residential Quote

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

AvalonBay Communities, Inc. carries a Zacks Rank of 3 and has an Earnings ESP of +0.46% for the to-be-reported quarter at present. In the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on all occasions, the average beat being 1.99%.

In the first quarter, AVB is likely to have gained from the high-quality residential assets in key regions, expansion efforts and portfolio diversification among urban and suburban markets. The company has a healthy balance sheet position. Moreover, it banks on technology and scale to drive innovation and margin expansion.

According to its operational update, AvalonBay witnessed improvements in the occupancy level and like-term effective rents through February. This residential REIT also reported a 7.3% increase in same-store residential rental revenues for two months ended Feb 28, 2022 compared with the prior-year period. This is roughly 60 basis points higher than the company’s initial expectation.

AvalonBay is set to release earnings results on Apr 27.

The Zacks Consensus Estimate for quarterly revenues stands at $615.4 million, calling for an 11.66% year-over-year increase. Apart from this, AVB’s activities during the quarter under review were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for first-quarter FFO per share has been revised a cent upward to$ 2.26 in a month. It implies 15.9% year-over-year growth.

Retail Opportunity Investments Corp. currently carries a Zacks Rank of 3 and has an Earnings ESP of +1.30% for the quarter under review.

This retail REIT specializes in the acquisition, ownership and management of grocery-anchored shopping centers situated in densely populated, metropolitan markets across the West Coast. Focus on essential retail tenants has been helping this REIT in the recent years and this trend is also expected to have continued in the current-year first quarter.

Retail Opportunity Investments is slated to report first-quarter figures on Apr 25.

The Zacks Consensus Estimate for first-quarter 2022 revenues is currently pegged at $72.9 million, suggesting a 5.37% growth year over year. The consensus mark for FFO per share is pinned at 26 cents for the quarter, calling for an increase of 8.3% year over year.

Acadia Realty Trust holds a Zacks Rank #3 and has an Earnings ESP of +4.73%, at present. The company surpassed estimates in three of the preceding four quarters and met in the other, the average surprise being 7.87%.

Acadia Realty Trust is focused on building a core portfolio, which comprises mainly high-quality street retail and urban assets, along with suburban properties located in high-barrier-to-entry, trade areas. AKR is likely to have gained in the quarter under consideration from improving industry fundamentals. It is expected to have experienced growth internally and externally with focus on maintaining a strong leasing momentum and closing its robust pipeline of new acquisitions.

Acadia Realty Trust will report January-March quarterly figures on May 2.

The Zacks Consensus Estimate for first-quarter FFO per share has been revised upward over the past week to 30 cents. It also calls for a 20% year-over-year increase on revenues of $66.6 million.

Acadia Realty Trust Price and EPS Surprise

Acadia Realty Trust Price and EPS Surprise

Acadia Realty Trust price-eps-surprise | Acadia Realty Trust Quote

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.