The third-quarter earnings season is in full swing and the real estate investment trust (REIT) space is buzzing with activity, with a slew of earnings releases lined up for Oct 28. Among others, Equinix, Inc. EQIX, Welltower Inc. WELL, AvalonBay Communities, Inc. AVB, Duke Realty Corporation DRE, Mid-America Apartment Communities, Inc. MAA and Essex Property Trust, Inc. ESS will release their quarterly numbers this Wednesday.
REITs invest in all types of properties, from residential, industrial, offices, malls to hospitals, hotels and data centers and several others. And underlying asset categories as well as location of properties play a crucial role in determining REITs’ performance. Although macroeconomic woes and social-distancing norms amid the pandemic are hurting the industry’s prospects, there are pockets of strengths too. Particularly, with concerns about face-to-face contact spurring online interactions and purchases, data-center REITs and industrial REITs that support digital economy are likely to have benefited during the quarter in discussion. Thus, delving into the asset fundamentals and markets of each REIT becomes all the more important.
Let’s analyze the factors that are expected to have played a key role in the above-mentioned REITs’ quarterly performance.
Equinix, Inc. is set to report third-quarter 2020 results after the closing bell. Our proven model predicts a positive surprise in terms of funds from operations (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 FFO beat. Equinix has the right combination of these two key ingredients with an Earnings ESP of +0.14% and Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The company has a remarkable surprise history, having beaten the Zacks Consensus Estimate for FFO per share in each of the preceding four quarters, the average surprise being 3.53%.
The Zacks Consensus Estimate for quarterly revenues is pinned at $1.50 billion, suggesting a 7.6% year-over-year improvement.The consensus estimate of $6.04 for the quarterly FFO per share calls for a year-over-year increase of 9.4%.
Following an impressive first-half 2020, data-center REITs are expected to have enjoyed strong leasing in the third quarter as well, supported by the massive work-from-home environment. In addition, the pandemic has accelerated the pace at which enterprises are making digital transformations. This too is fueling demand for data centers. (Read more: Will High Cloud Adoption Propel Equinix Q3 Earnings?)
Equinix, Inc. Price and EPS Surprise
Equinix, Inc. price-eps-surprise | Equinix, Inc. Quote
Welltower is scheduled to report earnings numbers after market close. Our proven model does not conclusively predict a beat in terms of FFO per share for Welltower this reporting cycle. This healthcare REIT currently carries a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -0.62%.
However, over the preceding four quarters, the company beat estimates on all occasions, the average surprise being 1.6%.
Total revenues for the September-end quarter are pegged at $1.15 billion, suggesting a fall of 9% from the prior-year period. Also, the Zacks Consensus Estimate of 81 cents for the quarterly FFO per share calls for a decline of 22.9%, year on year.
The weakness in the seniors housing market is expected to have impacted Welltower’s seniors housing operating and seniors housing triple-net segments. Further, expenses flared up due to higher labor costs and required protective-equipment supplies. Elevated expenses are likely to have hindered net operating income (NOI) growth during the quarter under review. (Read more: Will Seniors Housing Woes Mar Welltower's Q3 Earnings?)
Welltower Inc. Price and EPS Surprise
Welltower Inc. price-eps-surprise | Welltower Inc. Quote
AvalonBay Communities, Inc. will release third-quarter results after the bell. Our proven model does not conclusively predict a positive surprise in terms of FFO per share for this residential REIT this season, as AvalonBay currently carries a Zacks Rank #3 and has an Earnings ESP of -0.62%.
Over the last four quarters, the company surpassed estimates on one occasion and missed in the other three, the average negative surprise being 0.12%.
The Zacks Consensus Estimate of $563 million for quarterly revenues suggests a 4.2% year-over-year decrease. Additionally, the consensus mark of $2.15 for the quarterly FFO per share calls for a decline of 8.1% from the year-earlier quarter.
The U.S. apartment leasing rebounded during the September-end quarter. However, this bouncing back was not uniform. Though the Sun Belt markets staged a recovery, a number of gateway markets suffered net move-outs during the to-be-reported quarter, and urban core neighborhoods still struggled.
Particularly, the coronavirus pandemic and the work-from-home trend is resulting in a shift of some renter demand away from higher cost and urban/infill markets. In addition, record-low mortgage rates and the desire for spaces are driving home sales and adversely impacting rental demand. Furthermore, use of concessions is likely to have been rampant amid a slowdown in demand. Amid these, AvalonBay is likely to have been affected considerably. Nevertheless, this REIT has high-quality assets located in some of the premium markets of the country and banks on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. The company is also likely to have retained its balance-sheet strength during the third quarter. (Read more: What to Expect From AvalonBay This Earnings Season?)
AvalonBay Communities, Inc. Price and EPS Surprise
AvalonBay Communities, Inc. price-eps-surprise | AvalonBay Communities, Inc. Quote
You can see the complete list of today’s Zacks #1 Rank stocks here.
Duke Realty Corp. is slated to announce earnings result after the bell. Although Duke Realty currently carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.
Over the preceding four quarters, the company beat the Zacks Consensus Estimate on one occasion, met estimates in the other two and missed in another, the average negative beat being 0.75%.
The Zacks Consensus Estimate for third-quarter FFO per share is pegged at 39 cents, calling for a year-over-year improvement of 5.4%.
The industrial real estate category has been one of the most resilient ones amid the coronavirus pandemic. The social-distancing requirements have particularly prompted order of more goods online. Additionally, apart from e-retail, companies are making strategic moves to boost their supply-chain efficiencies, propelling demand for logistics infrastructure and efficient distribution networks. In fact, there is a drive to achieve resilience across the entire supply chain, which is translating into greater demand for industrial real estates.
Amid these, Duke Realty’s capacity to bank on this favorable trend is likely to have helped the company witness active leasing and healthy rent levels across a number of properties during the September-end quarter. Nonetheless, the current slowdown in the economy is likely to have affected demand for space in some markets during the quarter to be reported. (Read more:What's in the Offing for Duke Realty's Q3 Earnings?)
Duke Realty Corporation Price and EPS Surprise
Duke Realty Corporation price-eps-surprise | Duke Realty Corporation Quote
Mid-America Apartment Communities, Inc. — commonly known as MAA — is scheduled to report quarterly numbers after market close. Our proven model predicts a positive surprise in terms of FFO per share for MAA this season as it has the right combination of a positive Earnings ESP of +0.54% and a Zacks Rank of 3.
Over the last four quarters, the company outpaced the Zacks Consensus Estimate on three occasions, and missed in the other, the average beat being 1.57%.
The Zacks Consensus Estimate for quarterly revenues is pinned at $414.1 million, suggesting a year-over-year decline of 0.4%. However, the consensus estimate for the FFO per share of $1.54 calls for a year-over year increase of 0.7%.
MAA has a well-diversified portfolio in terms of markets, sub-markets, product types and price points across the Southeast and Southwest regions of the United States. This is likely to have supported this Sunbelt-focused apartment REIT in generating operating cash flows during the period in discussion. For the past few quarters, MAA has also been focusing on smart-home installations and interior redevelopment initiatives to generate accretive returns and boost earnings from its existing asset base. (Read more:Factors to Impact Mid-America Apartment's Q3 Earnings)
MidAmerica Apartment Communities, Inc. Price and EPS Surprise
MidAmerica Apartment Communities, Inc. price-eps-surprise | MidAmerica Apartment Communities, Inc. Quote
Essex Property Trust is slated to announce earnings result after the bell. Our proven model does not predict a beat in terms of FFO per share for the company this season, as it currently carries a Zacks Rank of 3 and has an Earnings ESP of -1.27%.
Over the trailing four quarters, the company beat the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being 0.33%.
The Zacks Consensus Estimate of $368.6 million for third-quarter revenues calls for a 0.5% improvement year on year. The company is also expected to have maintained a decent balance sheet and financial flexibility. However, the Zacks Consensus Estimate for FFO per share of $3.15 suggests a year-over year decline of nearly 6%.
Markedly, Essex Property has a sturdy property base, substantial exposure to the West Coast market and a robust management team. The company is also banking on its technology, scale and organizational capabilities to fuel innovation and margin expansion in the portfolio. Nevertheless, with California and Washington having implemented more restrictive lockdown policies than the rest of the United States in order to curb the spread of coronavirus, the West Coast’s economic recovery has been delayed. Loss of leisure and hospitality and other service jobs is eroding demand in the company’s markets. (Read more: Key Factors to Impact Essex Property's Q3 Earnings)
Essex Property Trust, Inc. Price and EPS Surprise
Essex Property Trust, Inc. price-eps-surprise | Essex Property Trust, 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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