Though the current reporting cycle is drawing to a close, results are still pouring in from the real estate investment trust (REIT) industry. In fact, on Feb 15, Equinix, Inc.EQIX , Annaly Capital Management, Inc.NLY , Life Storage, Inc.LSI , Healthcare Trust of America, Inc.HTA and Healthcare Realty Trust IncorporatedHR are slated to release their quarterly figures.
In the broader market, as of Monday, Feb 13, including all of the morning's releases, results are already out for 359 S&P 500 members and total earnings for these index members have increased +6.4% on +4.6% higher revenues, with 69.1% beating EPS estimates and 54.6% exceeding revenue expectations. (Read more: Q4 Scorecard & Analyst Reports for Pfizer, Boeing & Goldman Sachs )
However, performances have been mixed, so far, from the REIT industry's point of view; with AvalonBay Communities, Inc. AVB delivering a positive surprise of around 1% backed by growth in net operating income from the newly developed and existing operating communities. On the other hand, SL Green Realty Corp. SLG narrowly missed expectations on lower revenues. Again, Industrial REIT like Prologis, Inc. PLD came up with an in-line result.
No doubt, the rate hike issue has been a dominant factor in the fourth quarter, while political uncertainties flared up volatility. In addition, there had been bond rout amid Trump's promise of a robust fiscal stimulus. However, underlying asset category dynamics and location of properties played a key role in the operating performance of the REITs.
But, rates are still very low, and REITs have already managed their balance sheet well and are focused on lowering debt ratios.
Therefore, the office and industrial asset categories hogged the limelight for experiencing high demand, with the economy and job market displaying signs of recovery and ecommerce gaining strength. Yet, supply issues in a number of markets raised concerns for some of the residential REIT stocks. Also, dwindling mall traffic and store closures amid aggressive growth in online sales kept retail REITs on tenterhooks in the fourth quarter. However, growth in cloud computing, Internet of Things and big data drove demand for the data center REITs.
Therefore, surprises might be in store for some and disappointment for other REITs, this earnings season. However, to predict that, we rely on the Zacks methodology, combining a favorable Zacks Rank - Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) - and a positive Earnings ESP , to predict the chances of a beat this quarter. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Per our proprietary methodology, Earnings ESP shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Research shows that with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70% for the stocks.
We caution against stocks with Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Let's have a look at what's in store for the following REITs set to release their Q4 results on Wednesday:
Equinix is a data center REIT which provides network-neutral data centers and Internet exchange services for enterprises, content companies, systems integrators and network service providers. The stock has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). Therefore, this stock lacks the right combination required for an earnings beat prediction.
Over the past four quarters, the company posted an average beat of 9.59%, having beaten the Zacks Consensus Estimate in two quarters. This is depicted in the chart below:
Equinix, Inc. Price and EPS Surprise
Annaly Capital Management is a mortgage REIT that owns, manages, and finances a portfolio of real estate related investment securities, including mortgage pass-through certificates, collateralized mortgage obligations (or CMOs) and agency callable debentures. Annaly currently has a Zacks Rank #2. Despite having a favorable Zacks rank, it becomes difficult to predict for an earnings beat this quarter because the stock has an Earnings ESP of 0.00%. You can see the complete list of today's Zacks #1 Rank stocks here .
The company has delivered positive earnings surprise in two of the trailing four quarters, met in another and missed in the other occasion, with an average beat of 2.01%, as demonstrated in the chart below:
Annaly Capital Management Inc Price and EPS Surprise
Life Storage is a REIT which acquires and manages self-storage properties. The company was formerly known as Sovran Self Storage, Inc. Presently, Life Storage has a Zacks Rank #3 and an Earnings ESP of 0.00%. Our proven model does not conclusively show that Life Storage will beat on earnings this season because it lacks the right combination required for an earnings beat prediction.
However, Life Storage has a mixed track record of surprises. In fact, it has missed expectations in two of the trailing four quarters, met in another and exceeded in the other, with an average negative surprise of 0.03%. This is shown in the chart below.
Life Storage, Inc. Price and EPS Surprise
Healthcare Trust of America, Inc. is a REIT that acquires, owns and operates medical office buildings. It has a Zacks Rank #3. Despite a favorable Zacks rank, it is difficult to conclusively predict an earnings beat this earnings season because it has an Earnings ESP of 0.00%.
However, Healthcare Trust of America does not have a solid track record of surprises. In fact, it has missed expectations in two of the trailing four quarters and met in the other two, with an average negative surprise of 1.24%. This is shown in the chart below.
Healthcare Trust of America, Inc. Price and EPS Surprise
Healthcare Realty Trust Incorporated is a REIT that integrates owning, managing, financing and developing income-producing real estate properties associated mainly with the delivery of outpatient healthcare services throughout the U.S. Healthcare Realty Trust currently has an Earnings ESP of 2.50% and a Zacks Rank #4. Though a positive ESP increases the predictive power, we also need to have favorable rank for a probable earnings beat. However, this is not the case here.
Over the trailing four quarters, it has missed estimates in one quarter and met in the rest three occasions, leading to an average negative surprise of 0.63%. This is depicted in the graph below.
Healthcare Realty Trust Incorporated Price and EPS Surprise
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