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REITs to Watch for Q4 Earnings on Feb 5: ABV, OHI, CUZ & TWO

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A number of REITs are queued to release fourth-quarter 2019 numbers this week, including residential REIT AvalonBay Communities, Inc. AVB, healthcare REIT Omega Healthcare Investors, Inc. OHI, office REIT Cousins Properties (CUZ - Free Report) and mREIT Two Harbors Investment Corp. TWO. All four companies areslated to report their quarterly numbers on Feb 5.

The U.S. apartment rental market put up a decent show in the December-end quarter, despite demand for apartments generally slowing down during the colder months, as renters usually prefer less to move in winters. Per the latest report from real estate technology and analytics firm RealPage, Inc., occupancy at the end of the quarter remained as high as 95.8%, reflecting an expansion of 40 basis points (bps), year on year. Moreover, rents for new-resident leases were up 2.8% in 2019, hovering around the 3% level that the apartment market has been witnessing since late 2016.

Further, going be a report from Newmark Knight Frank, the U.S. office market remained stable during fourth-quarter 2019. In fact, vacancy rates shrunk 20 bps, year over year, to 12.9%. Further, average asking rate across the nation for the quarter improved 1.3% year over year to $29 per square foot gross full service. However, absorption in the October-December quarter contracted 4.3 million square feet of space compared with the prior-year quarter.

As for mREITs, positive economic growth, strong demand for housing and mortgage rates being relatively stable are expected to have supported mortgage originations during the period in discussion. In October, The Federal Open Market Committee (FOMC) slashed the federal-fund rate by 0.25%. This is expected to have resulted in higher mortgage prepayments and refinancing.

Let’s take a glance at how these four REITs are placed ahead of fourth-quarter results.  

AvalonBay is expected to have registered steady rental revenues, given its ownership of high-quality assets located in some of the premium markets of the United States. As such, the Zacks Consensus Estimate for fourth-quarter rental and other income is pegged at $592 million, indicating 1% sequential growth.

Also, high home-ownership costs in several markets are affecting transitions from renters to homeowners. This, along with favorable demographics and household formation as well as job-market gains, is likely to have contributed to high occupancy at the company’s residential properties.

Further, the Zacks Consensus Estimate for quarterly revenues of $594 million suggests a 2.7% year-over-year increase. Also, the Zacks Consensus Estimate for fourth-quarter 2019 funds from operations (FFO) per share is pinned at $2.40,  indicating 3.9% year-on-year growth.  (Read more: Key Factors to Impact AvalonBay's Q4 Earnings)

Our proven model predicts a beat in terms of FFO per share for AvalonBay this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AvalonBay currently carries a Zacks Rank of 2 and has an Earnings ESP of +0.46%.

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

AvalonBay Communities, Inc. Price and EPS Surprise
 

Omega Healthcare 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 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 boosted the company’s top-line growth. Portfolio occupancy is expected to have benefited from upbeat demographic trends.

The Zacks Consensus Estimate for fourth-quarter revenues of nearly $244 million suggests a rise of 11.02%, year over year.

For the quarter under review, the company expects adjusted FFO per share of 76-79 cents. Notably, Omega’s activities during the quarter were adequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for the quarterly FFO per share climbed a cent upward to 77 cents over the past month. The figure also suggests a 5.5% increase year on year. (Read more: Key Factors to Impact Omega Healthcare's Q4 Earnings)

Omega Healthcare Investors, Inc. Price and EPS Surprise
 

With an Earnings ESP of +0.78% and a Zacks Rank of 3, our proven model predicts a beat in terms of FFO per share for Omega this time around.  

Cousins Properties’ unmatched portfolio of Class-A office assets concentrated in the high-growth Sun Belt markets is expected to have witnessed decent demand for office space. In fact, hiring levels in the labor market remained sturdy during the fourth quarter. Further, on an average, 184,000 new jobs were added to the market during the October-December period. This comes at a time when the U.S economy is at its now record-long, economic expansion cycle.

Such an encouraging environment is expected to have propelled healthy leasing activity and rental rate growth for Cousins Properties. This is anticipated to have supported net operating income (NOI) growth.

However, higher construction activity is expected to have boosted new supply of Class A office space in the company’s market, leading to lesser scope for rent and occupancy growth.

The company’s results will likely reflect year-over-year growth in FFO per share and revenues. The Zacks Consensus Estimate for FFO per share of 74 cents indicates 8.8% growth, while revenues of $183.6 million indicate a 53.8% surge.

Although Cousins Properties currently carries a Zacks Rank of 3, its Earnings ESP of -0.94% makes surprise prediction difficult.

Cousins Properties Incorporated Price and EPS Surprise
 

Two Harbors’ portfolio consists of a rates strategy and a credit strategy. The former includes Agency residential mortgage-backed securities (MBS), Agency derivatives, mortgage servicing rights (MSR), to-be-announced securities and associated notional hedges. The credit strategy consisted of legacy non-Agency securities and associated notional hedges.

With a surge in issuance of agency MBS, we anticipate the company to have increased investments in its Agency portfolio during the quarter to be reported.

However, given the speedy-prepayment scenario we anticipate higher MSR amortization expense for the company in the final quarter of 2019. Additionally, the credit markets witnessed volatility during the period under consideration. This resulted in tighter spreads and is expected to have adversely impacted the company’s non-agency portfolio.

Amid these, the Zacks Consensus Estimate for fourth-quarter earnings per share of 40 cents and net interest income of $64.2 million calls for 18.4% and 28.4% year-over-year decline, respectively.

Two Harbors Investments Corp Price and EPS Surprise
 

A Zacks Rank of 4 (Sell) and Earnings ESP of -1.27% makes surprise prediction difficult for Two Harbors this time around.

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