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What's in the Cards for Global Net Lease's (GNL) Q4 Earnings?

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Global Net Lease, Inc. GNL is scheduled to report fourth-quarter 2018 results before the opening bell on Feb 27. The company’s results are anticipated to reflect year-over-year increase in both revenues and funds from operations (FFO).

In the last reported quarter, this real estate investment trust (REIT) delivered a better-than-expected performance in terms of FFO per share, posting a positive surprise of 5.88%.

However, Global Net Lease has a mixed surprise history. The company surpassed estimates in two occasions, met in another and missed in the other, over the trailing four quarters, resulting in average positive surprise of 3.36%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

New York-based Global Net Lease focuses on acquisition and management of industrial and office properties, leased for the long term, to quality corporate tenants in select markets in the United States and Europe.

Notably, investment grade or implied investment grade tenants constitute majority of the company’s portfolio and it enjoys a high occupancy level for its properties. As such, in the to-be-reported-quarter, Global Net Lease is expected to have experienced a consistent cash flow from its net leased properties.

The company aims at capitalizing on acquisition opportunities of net lease assets, with a continued near-term focus on U.S. industrial and distribution facilities, and strategically boosting its international footprint.

In sync with such efforts, during the fourth quarter, the company closed on acquisition of six properties, comprising industrial and distribution facility, and representing 1.3 million square feet, for about $211.8 million. The acquisitions, with a weighted-average remaining lease term of 11.3 years, were made at a weighted-average GAAP capitalization rate of 7.23%. For 2018, the company acquired 23 buildings for more than $478 million.

Moreover, per a study by the commercial real estate services firm — CBRE Group CBRE — availability fell for 34 straight quarters to 7.0% for the U.S. industrial market in Q4, denoting the lowest point since 2000. Additionally, with demand surpassing new supply, net asking rents increased 2.2% in Q4 to $7.37 per square feet — marking the highest level since 1989, per a CBRE report.

Such acquisition moves are a strategic fit for the company and will drive the company’s rental income levels. Throughout 2018, the company made concerted efforts to improve its capital structure by extending maturities, conserving a low cost of debt and improving the debt structure for continued future growth.

These are anticipated to have helped the company enjoy higher revenues in the Oct-Dec quarter. In fact, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $74.7 million, indicating a year-over-year rise of 12.2%.

However, prior to the fourth-quarter earnings release, there is lack of any solid catalyst. As such, the Zacks Consensus Estimate of FFO per share for the fourth quarter remained unchanged at 54 cents, over the past month. Nevertheless, the figure indicates a 5.9% increase from the comparable period last year.

Here is what our quantitative model predicts:

Global Net Lease does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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

Earnings ESP: The Earnings ESP for Global Net Lease is 0.00%.

Zacks Rank: Global Net Lease has a Zacks Rank of 3 (Hold), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

RLJ Lodging Trust RLJ, slated to release quarterly results on Feb 28, has an Earnings ESP of +4.08% and holds a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Senior Housing Properties Trust , set to release earnings on Mar 1, has an Earnings ESP of +36.36% and holds a Zacks Rank of 2 (Buy).

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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