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REITs to Watch for Q3 Earnings on Nov 5: HST, OHI, LAMR & DEI

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The real estate investment trust (REIT) space is buzzing with activity, with the current reporting cycle in full swing and there is a deluge of earnings releases lined up for Nov 5. Among others, Host Hotels & Resorts, Inc. (HST - Free Report) , Omega Healthcare Investors, Inc. OHI, Lamar Advertising Company LAMR and Douglas Emmett, Inc. DEI will release their quarterly numbers on Tuesday.

The macro-economic conditions have, undoubtedly, been encouraging for commercial and residential REITs. Particularly, moderate economic growth, low inflation, and declining interest rates are anticipated to have driven REITs’ performance in the quarter to be reported. However, the uptick in supply in certain asset categories might have fueled competition and curbed any robust growth tempo in terms of rent an occupancy growth.

Therefore, with underlying asset categories and the location of properties playing a crucial role in determining REITs’ performance, delving into the asset fundamentals and markets of each REIT becomes all the more important.

These apart, per the latest Earnings Preview, overall earnings for the finance sector, of which REITs are part, will likely be up 1.5% year over year on 9.1% higher revenues, in third-quarter 2019.

Let’s analyze the factors that are expected to have played a key role in the above-mentioned REITs’ third-quarter performance.

Host Hotels & Resorts, Inc. is slated to report quarterly results after market close. Our proven model does not conclusively predict a positive surprise in terms of funds from operations (FFO) per share for this Bethesda, MD-based lodging 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Host Hotels carries a Zacks Rank of 3, its Earnings ESP of -2.82% makes surprise prediction difficult.

Notably, the U.S hotel industry’s results have been decelerating for the last three quarters. This resulted from deteriorating leisure demand, persistent high supply in key lodging markets, rising wage pressures, and higher property taxes. Further, amid prevailing global slowdown and uncertainty surrounding the ongoing trade deals, businesses have recently adopted a cautious stance. This has resulted in a decline in business-transient demand. The soft operating environment is expected to have adversely impacted hotel REITs' performance. Nonetheless, the company has improved its portfolio quality by recycling capital out of low RevPAR assets to high RevPAR ones. (Read more: Host Hotels Gears Up for Q3 Earnings: What to Expect?)

Amid these, the Zacks Consensus Estimate for third-quarter revenues is pegged at $1.3 billion, suggesting a y/y decline of 3.1%.  Moreover, there was no solid catalyst during the quarter. Hence, in a month’s time, the Zacks Consensus Estimate of FFO per share remained unrevised at 34 cents. The figure also indicates y/y decline of 8.1%.

In the past four quarters, Host Hotels surpassed estimates thrice and missed in the other occasion, delivering an average positive surprise of 3.85%. The graph below depicts this surprise history:

Host Hotels & Resorts, Inc. Price and EPS Surprise

Host Hotels & Resorts, Inc. Price and EPS Surprise

Host Hotels & Resorts, Inc. price-eps-surprise | Host Hotels & Resorts, Inc. Quote

Omega Healthcare Investors, Inc. is slated to report third-quarter 2019 results after market close. This healthcare REIT, which invests in the long-term healthcare industry, mainly in skilled nursing (SNF) and assisted living facilities, has emerged as a leading SNF-focused REIT, and has achieved diversification in terms of geography and operator in the United States and the U.K. In the to-be-reported quarter, this diversification is anticipated to have aided the company’s top-line growth. Portfolio occupancy is expected to have benefited from positive demographic trends.

Further, strategic expansion efforts are likely to have helped the company boost its top-line growth in the quarter. The Zacks Consensus Estimate for third-quarter revenues of nearly $232.3 million suggests a rise of 4.7%, year over year.

However, tenant credit headwinds are likely to have curtailed any robust growth. The company noted that its low Medicaid rate and labor pressures have continued to challenge many of its Texas operators. As such, the Zacks Consensus Estimate of FFO for the quarter moved marginally downward to 75 cents, over the past month. The figure also reflects a projected decline of 2.6% year over year. (Read more: Omega Healthcare to Post Q3 Earnings: What's in Store?)

Moreover, although Omega carries a Zacks Rank of 3, its Earnings ESP of -1.11% makes surprise prediction difficult.

Nonetheless, the company has an impressive surprise history. It outshone the Zacks Consensus Estimate in three of the preceding four quarters, the average positive surprise being 1.04%.

Omega Healthcare Investors, Inc. Price and EPS Surprise

Omega Healthcare Investors, Inc. Price and EPS Surprise

Omega Healthcare Investors, Inc. price-eps-surprise | Omega Healthcare Investors, Inc. Quote

Lamar Advertising Company is slated to report quarterly results before market open. The specialty REIT, one of the reputed owners and operators of outdoor advertising structures in the United States, enjoys an impressive national footprint. The REIT holds a leading position as a provider of logo signs in the nation. In the to-be-reported quarter, Lamar is expected to have gained from its focus on portfolio upgradation and expansion, which will likely have backed occupancy growth in its existing advertising displays as well as fueled advertising rates.

Amid these, the Zacks Consensus Estimate for September-end quarter revenues is currently pinned at $453.2 million, indicating 8.3% growth year over year. Additionally, the FFO per share estimate for the quarter stands at $1.59, projecting a 5.3% increase from the prior-year quarter.

Nonetheless, Lamar is facing higher capital expenditures and expenses related to the acquired outdoor advertising assets. This will likely strain its margins. In addition, stiff competition, specifically from national players, might have impeded its growth momentum.

Although Lamar carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

The company has a mixed surprised history, beating estimates on two occasions for as many misses, in the last four quarters. This is depicted in the graph below.

Lamar Advertising Company Price and EPS Surprise

Lamar Advertising Company Price and EPS Surprise

Lamar Advertising Company price-eps-surprise | Lamar Advertising Company Quote

Douglas Emmett, Inc. is slated to report its quarterly results after the market closes. Based Santa Monica, CA, Douglas Emmett is one of the leading owners and operators of high-quality office and multi-family properties in the premier coastal submarkets of Los Angeles and Honolulu.  

The company is expected to have witnessed decent fundamentals in its markets with continued healthy tenant demand from a wide range of industries and considerable barriers to new supply, in the third quarter. Leasing spreads are anticipated to have been strong and the company is likely to have witnessed an overall improvement in its balance-sheet strength.

The Zacks Consensus Estimate for third-quarter revenues is currently pinned at $231.9 million, suggesting growth of 17.7%, year on year. Also, the Zacks Consensus Estimate for FFO per share of 52 cents depicts an estimated uptick of nearly 2% from the prior-year quarter.

Our proven model predicts a beat in terms of FFO per share for Douglas Emmett this season as it currently carries a Zacks Rank of 3 and has an Earnings ESP of +4.85%.

Over the past four quarters, the company outpaced the Zacks Consensus Estimate on one occasion and reported in-line results in the other three, the average positive beat being 0.47%. This is depicted in the chart below:

Douglas Emmett, Inc. Price and EPS Surprise

Douglas Emmett, Inc. Price and EPS Surprise

Douglas Emmett, Inc. price-eps-surprise | Douglas Emmett, Inc. Quote

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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