Back to top

Image: Bigstock

Will Retail Blues Play Spoilsport for GGP in Q1 Earnings?

Read MoreHide Full Article

GGP Inc.  is slated to report first-quarter 2018 results on May 5, before the market opens. Both its funds from operations (FFO) per share and revenues are anticipated to improve year over year.

This retail real estate investment trust’s (REIT) fourth-quarter 2017 FFO per share of 48 cents beat the Zacks Consensus Estimate by a cent. The figure was also higher than 43 cents posted in fourth-quarter 2016. Also, results reflected 1.3% year-over-year growth in same-store net operating income (NOI).

Over the preceding four quarters, the company surpassed estimates in two occasions and met in the other two, the average positive surprise being 4.1%. This is depicted in the graph below.

General Growth Properties, Inc. Price and EPS Surprise

Let’s see how things have shaped up for this announcement.

Factors to Consider

On Mar 26, GGP accepted the revised acquisition offer extended by Brookfield Property Partners, per which Brookfield will acquire the GGP shares, it doesn’t own yet, for nearly $15.3 billion, gaining complete ownership of the second-largest U.S. mall owner.

Notably, GGP continues to bear the brunt of the lackluster retail real estate market. In fact, recent data from real estate research firm — Reis — states that U.S. retail real estate vacancies persisted at the 10% levels for first-quarter 2018. Additionally, mall traffic continues to suffer as e-commerce has been increasingly capturing market share from the traditional brick-and-mortar stores, compelling retailers to resort to online options or file bankruptcy. In fact, the first few months of the year witnessed several preeminent retail bankruptcy filings and record-high defaults by retail corporates.

Amid these, the Zacks Consensus Estimate of $368 million for minimum rents underscores a decline from the prior-quarter figure of $393 million. Further, the Zacks Consensus Estimate for overage rents of $6.53 million highlights a steep sequential plunge of nearly 70%.

Nonetheless, GGP has a solid portfolio of high-quality retail properties across attractive locations in the United States. In addition, it has been making efforts to counter retail pressure through various initiatives. The company is focusing on omni-channel retailing to generate higher sales. Moreover, it is focused on offering mall visitors with access to retail, dining and entertainment hubs in some of the best trade areas in the nation.

The above-mentioned moves are expected to boost the shopping experience and enhance sales volume at tenant stores, consequently raising demand for the company’s assets.

Amid these, the Zacks Consensus Estimate for revenues for the to-be-reported quarter is pegged at $603 million, indicating projected growth of 6.5% from the year-ago period.

Furthermore, GGP’s activities during the quarter could not gain analyst confidence. Consequently, the Zacks Consensus Estimate for FFO per share remained unchanged at 37 cents over the past month. This indicates estimated rise of 2.8% year over year.

Earnings Whispers

Our proven model does not conclusively show that GGP 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.

Zacks ESP: GGP 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.

Zacks Rank: GGP has a favorable Zacks Rank of 2.

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 report a positive surprise this time around:

Realty Income (O - Free Report) , slated to release first-quarter results on May 8, has an Earnings ESP of +0.64% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Retail Properties of America, Inc. (RPAI - Free Report) set to report quarterly numbers on May 1, has an Earnings ESP of +0.67% and a Zacks Rank of 3.

STORE Capital Corporation (STOR - Free Report) ,scheduled to release earnings on May 3, has an Earnings ESP of +0.77% and a Zacks Rank of 3.

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.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Realty Income Corporation (O) - free report >>

STORE Capital Corporation (STOR) - free report >>

Retail Properties of America, Inc. (RPAI) - free report >>

Published in