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Why GGP Inc. (GGP) Q2 Earnings Might Disappoint Investors

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General Growth Properties Inc. (GGP - Free Report) — a retail real estate investment trust (REIT) — is slated to report second-quarter 2017 results on Aug 2, before the market opens.

Its second-quarter funds from operations (‘FFO’) per share estimate moved down to 35 cents over the last 30 days.

In the last quarter, GGP Inc. reported in-line results. In fact, over the trailing four quarters, GGP Inc. delivered an in-line performance in each quarter. This is depicted in the chart below:
 

Note: The EPS presented in the above chart represent funds from operations (FFO) per share.

Factors to Influence Q2 Results

GGP Inc. enjoys a robust portfolio of high-quality retail properties across attractive locations in the U.S., with the presence of renowned tenants. Hence, amid an improving economy and its omni channel retailing, the company is capable of generating decent cash flows.

However, the retail real estate market has been crippling with issues like bankruptcies and downsizing of retailers. This is because mall traffic continues to decline amid rapid shift in customers’ shopping preferences and patterns, with online purchases growing at a rapid pace. These have emerged as serious concerns for retail REITs, as the trend is curtailing demand for the retail real estate space considerably.

Given this, GGP Inc. has been making efforts to counter such pressure through various initiatives. However, implementation of such measures requires significant upfront costs, which might limit near-term growth in profit margins.

Earnings Whispers

Our proven model does not conclusively show that GGP Inc. will likely beat FFO estimates this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

(You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.)

Zacks ESP: The Most Accurate estimate matches the Zacks Consensus Estimate of 35 cents, translating into an Earnings ESP of 0.00%.

Zacks Rank: GGP Inc. currently carries a Zacks Rank #4 (Sell), which actually reduces the predictive power of ESP.

Further, the stock has lost 8.8% year to date, underperforming 4.6% decline of the industry it belongs to.


Stocks That Warrant a Look

Here are a few stocks in the REIT space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

Regency Centres Corporation (REG - Free Report) , scheduled to release second-quarter results on Aug 3, has an Earnings ESP of +1.12% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CyrusOne Inc (CONE - Free Report) , slated to release earnings on Aug 2, has an Earnings ESP of +2.70% and a Zacks Rank #2.

Ramco-Gershenson Properties Trust (RPT - Free Report) , set to release quarterly numbers on Aug 1, has an Earnings ESP of +2.94% and a Zacks Rank #3.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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