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REITs to Watch for Q4 Earnings on Feb 11: PEAK, UDR & NNN

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The Q4 earnings season is in full swing and the real estate investment trust (REIT) space is buzzing with activity with a deluge of earnings releases lined up on Feb 11. Among others, Healthpeak Properties, Inc. (PEAK - Free Report) , UDR Inc. (UDR - Free Report) and National Retail Properties, Inc. (NNN - Free Report) will release their quarterly numbers on Tuesday.

Notably, resilient economic activity, a healthy job-market environment and low 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 intensified competition and curbed any robust growth tempo in terms of rent and 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.

Particularly, during fourth-quarter 2019, fundamentals of the U.S seniors housing sector were supported by seasonal uptick in occupancy, decent net absorption and moderating new construction. Usually, demand for senior housing space increases in the fourth quarter relative to the third quarter and is the year’s strongest, mostly. This, along with favorable demand trends, is expected to have aided healthcare REITS’ performance in fourth-quarter 2019.

Moreover, the latest figures from real estate technology and analytics firm RealPage, Inc. (RP) suggest that following a robust prime leasing season in 2019, 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. Occupancy at the end of fourth-quarter 2019 remained as high as 95.8%, reflecting an expansion of 40 basis points (bps), year on year. In addition, 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.

Nevertheless, store closures and bankruptcies have been affecting the retail real estate market, for quite some time, which has been undergoing structural changes. Also, the recent data from Reis shows that the retail and the Mall vacancy rates both increased during the quarter in discussion. Particularly, the retail vacancy rate inched up 0.1% to 10.2% in the fourth quarter. Further, retail rent growth was just 0.1%, while mall rents remained flat.

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

Healthpeak Properties is slated to report quarterly numbers after market close. Our proven model predicts a beat in terms of FFO per share for the company 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.

Healthpeak Properties currently carries a Zacks Rank of 3 and has an Earnings ESP of +1.15%.

This healthcare REIT has been making strategic efforts to strengthen all three core segments — senior housing, medical office and life science — on acquisitions and portfolio quality-enhancing transactions. It is expected to have benefited from transformation of its senior-housing operating portfolio (SHOP) asset quality. Specifically, to gain from stronger demographics and increasing penetration, the company has added strategic properties and recycled capital on the back of dispositions. This is expected to have helped the company expand the geographic footprint of its SHOP portfolio in high-growth and affluent markets, and enjoy superior gains in RevPOR during the December-end quarter. (Read more: What's in the Offing for Healthpeak's Q4 Earnings?)

In fact, total revenues for the quarter are pegged at $540.8 million, suggesting year-over-year growth of 22.4%. In addition, prior to the fourth-quarter earnings release, the company has been witnessing upward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter has been revised 2.3% upward to 44 cents over the past month, reflecting analysts’ bullish sentiments. Additionally, it represents 2.3% year-over-year growth.

Over the trailing four quarters, the company exceeded estimates on three occasions and met in the other, the average positive surprise being 1.75%. This is depicted in the graph below.

Healthpeak Properties, Inc. Price and EPS Surprise

Healthpeak Properties, Inc. Price and EPS Surprise

Healthpeak Properties, Inc. price-eps-surprise | Healthpeak Properties, Inc. Quote

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

Residential REIT UDR is slated to report fourth-quarter and full-year 2019 results after the closing bell. Favorable demographics, household formation and job-market gains are anticipated to have been key demand drivers for the company’s properties in the quarter. UDR has also been steadily implementing its Next Generation operating platform consisting of SmartHome installations and other infrastructure buildouts. These efforts are anticipated to have driven margin expansions and supported the company’s operational platform during the period under consideration.

However, new supply of apartment properties was elevated in the quarter under review, in a number of the company’s markets. Particularly, new lease rate growth might have been adversely impacted. (Read more: UDR to Report Q4 Earnings: What's in Store for the Stock?)

The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $296.6 million, indicating 12.04% year-over-year growth. The Zacks Consensus Estimate for the quarterly FFO per share of 54 cents calls for year-over year growth of 8%. The company projects FFO as adjusted per share at 53-55 cents.

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

Over the preceding four quarters, the company outpaced estimates on two occasions for as many in-line performances, delivering an average positive surprise of 1.01%. This is depicted in the chart below:

National Retail Properties, Inc. invests in net-leased retail properties throughout the United States. The company is expected to report quarterly numbers before the opening bell.

The Zacks Consensus Estimate for revenues is pegged at $171.2 million, indicating growth of 7.8% year on year. Nevertheless, prior to the fourth-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the October-December period remained unchanged at 70 cents, over the past 30 days. Nonetheless, it suggests year-over-year growth of 7.7%.
Nonetheless, our proven model does not conclusively predict a positive surprise in terms of FFO per share for this retail REIT this season, as National Retail Properties currently carries a Zacks Rank of 4 (Sell) and has Earnings ESP of 0.00%.

The stock exceeded estimates in three out of the preceding four quarters and met in the other, the average beat being 1.13%, as demonstrated in the chart below:

National Retail Properties Price and EPS Surprise

National Retail Properties Price and EPS Surprise

National Retail Properties price-eps-surprise | National Retail Properties 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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