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2 Hot REIT Picks before Earnings - Earnings ESP

2 Hot REIT Picks before Earnings

If you are planning to pour in your hard earned money in the real estate investment trust (REIT) sector, or have already invested in it, then you must be wondering what the Fed policy will unfold next week.

The Fed Chair's recent comments and the macroeconomic environment hint at a further $10 billion slash in the bond buying program to $45 billion while the interest rates hold steady at the near zero levels.

But rather than worrying about when the Fed will start lifting the short-term interest rates, you should focus on the unique feature of this distinct asset class.

As REITs are usually owners and managers of different types of properties like malls, shopping centers, apartments, offices, hotels, industrial or other facilities, they offer shareholders ownership benefits of the real estate without actually becoming landlords. As a result of this unique opportunity, shareholders can gain maximum leverage by focusing on the individual market dynamics of these different asset types.

Retail REITs Embracing E-commerce

The retail REIT sector is interestingly going through a whirlwind of changing dynamics and transformation. Leaving behind the concerns of lesser footfall in the brick and mortar shops owing to the boom in e-commerce and online retail sales, these REITs have decided to go to the mattresses.

While online shopping is grabbing consumer attention with its hot deals, retail REITs are embracing the changing dynamics and joining forces with several technology providers to lure more customers and their dollars. These retailers are digitizing their malls ( RetailMeNot, Inc. (SALE) recently entered into a deal with General Growth Properties, Inc. (GGP) for digital coupon facilities across its properties), offering same delivery facilities (last year Simon Property Group Inc. (SPG), The Macerich Company (MAC) and General Growth Properties partnered with Deliv to roll out this facility) and turning into distribution hubs.

We believe this transformation will rule the retail REIT space in the years ahead and companies that wish to gain maximum advantage from this will have to leverage on the growing opportunities of technology applications in the retail sector.

Industrial REITs Not Far Behind

And the retail REIT sector is not the only one to exploit this e-commerce boom. As a matter of fact, a larger customer base and rise in e-Commerce application are generating greater demand for logistics infrastructure and efficient distribution networks.

Demand for Class-A industrial facilities is increasing and companies are seeking consolidation of distribution networks and are settling near areas where there is a dense population. This not only helps to serve customers better but also cuts down on delivery time.

Fundamentals Going Strong

Growing consumer confidence is essentially driving the demand for retail goods and hence the REITs that offer real estate to the retail sector can benefit from this. Supply of new properties remains low and this is particularly expected to support growth in rents.

Giving us confidence is the recent analysis by the commercial real estate services firm CBRE Group, Inc. (CBG). This study reveals that retail availability rate dropped 10 bps to 11.9% in the first quarter 2014, reflecting its first dip below 12% since 2009. The CBRE forecast of a further decline in availability rate for neighborhood and community shopping centers to 10.6% in 2014 raises our hope further.

The industrial market too has continued to recuperate and, according to the report by CBRE, the national industrial availability in first-quarter 2014 fell by 20 basis points from end 2013 to 11.1%. Though the rate of decline in availability has slowed to some extent due to increase in construction, a large number of markets are yet to recover completely, reflecting the scope for growth in rents in the upcoming periods. Moreover, CBRE's expectation for another 30 bps decline in the national industrial availability rate in 2014 to 10.8% looks encouraging.

Therefore, with earnings releases underway, it might be a good idea to pick a few REITs that are poised to beat earnings. Earnings beat will essentially rebuild investors' confidence in these stocks, leading to quick appreciation in price.

How to Find Top Picks

Picking the right stock from a long list of REIT stocks may be quite difficult. Don't worry; we have an easy way of narrowing down the list. The technique is to take a look at stocks with solid Zacks Rank and favorable Earnings ESP .

Earnings ESP is our proprietary methodology for determining stocks having the best chance to surprise with their next earnings announcement and shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

The combination of a Zacks Rank #3 (Hold) or better and a positive earnings ESP, is usually a solid indication of earnings beat. In fact, our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Here are 2 REIT stocks that have the right combination of elements to deliver an earnings beat in their upcoming announcements. In addition to expected price appreciation, the solid dividend income that these REITs offer promise encouraging returns.

Kimco Realty Corporation ( KIM ) has a Zacks Rank #3 and an earnings ESP of +2.94%. The Zacks Consensus Estimate for the first quarter is pegged at 34 cents per share. Moreover, the company registered an average positive earnings surprise of 4.60% over the trailing four quarters.

New Hyde Park, NY based Kimco is currently concentrating its future investments on the neighborhood and community shopping center segment, primarily focusing on the key U.S. market having demographics and household income levels higher than the national average.

- Kimco is scheduled to announce its first-quarter results after market close on May 7.

Rexford Industrial Realty, Inc. ( REXR ) carries a Zacks Rank #3 and has an earnings ESP of +11.11%. The Zacks Consensus Estimate for the first quarter is 18 cents per share. Rexford has a long-term expected growth rate of 8.0%.

Los Angeles, CA based Rexford makes investments in industrial properties in Southern California infill markets.

-Rexford Industrialis slated to announce its first-quarter results after market close on May 12.

KIMCO REALTY CO (KIM): Free Stock Analysis Report

REXFORD IND RTY (REXR): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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