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REITs to Watch for Earnings on Jan 30: GGP, UDR and ARE

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The Q4 earnings season for real estate investment trust (REIT) stocks has already commenced and Monday marks the beginning of one of the busiest weeks of the season.

Retail REIT GGP Inc.GGP , Residential REIT UDR Inc.UDR and office REIT Alexandria Real Estate Equities, Inc.ARE are slated to report their earnings on Jan 30, 2017.

No doubt, the rate hike issue has been a consistent theme in the quarter and finally the increase did occur in Dec 2016. Also, there had been bond rout amid Trump's promise of strong fiscal stimulus. However, REITs have already managed their balance sheet well and focused on lowering debt ratios. In addition, rates are still much low, giving scope to REITs to absorb future hikes.

Nevertheless, apart from the rate factor, the performance of REIT stocks depends on the individual asset class dynamics and in the fourth quarter, not all the asset categories displayed solid strength in their fundamentals.

Office and industrial asset categories hogged the limelight for experiencing high demand. Going by numbers, per a study by the commercial real estate services' firm CBRE Group Inc. CBG , for the U.S. industrial market, availability fell for 26 straight quarters to 8.2% in the fourth quarter. Moreover, the overall office vacancy rate declined 10 basis points (bps) to 12.9% in fourth-quarter 2016, denoting the lowest level since first-quarter 2008.

However, supply issues in a number of markets have raised concerns for some of the residential REIT stocks. According to early apartment data from the AXIOMetrics, the fourth quarter witnessed a 1.2% sequential decrease in effective rents, marking a continuation of the trend of declining rents quarter over quarter. Also, occupancy of 94.7% in the fourth quarter was down from 95.1% in the third quarter and 95.0% in fourth-quarter 2015 as well. Furthermore, dwindling mall traffic and store closures amid aggressive growth in online sales kept retail REITs on tenterhooks.

Therefore, surprises might be in store for some and disappointment for other REITs, this earnings season. But 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.

Let's have a look at what's in store for the three REITs set to release their results on Monday:

Retail REIT, GGP has a solid portfolio of high-quality retail properties across attractive locations in the U.S. GGP has an Earnings ESP of -2.33% and a Zacks Rank #3. Despite a favorable Zacks Rank, the negative ESP reduces the chance of any positive surprise this quarter. You can see the complete list of today's Zacks #1 Rank stocks here .

Amid an improving economy, GGP's retail properties have the capability to generate decent cash flows on the back of its cluster of renowned tenants. However, mall traffic continues to suffer, with online purchases growing by leaps and bounds. This trend has been curtailing demand for the retail real estate space significantly. While GGP has been striving to counter such pressure through various initiatives, we believe that implementation of such measures requires considerable upfront expenditure, which might limit near-term growth in profit margins. (Read More: Will Dismal Q4 Earnings Hit General Growth Stock? )

For the trailing four quarters, GGP has beat estimates in two quarters and met in the other two, posting an average positive surprise of 4.17%. This is depicted in the chart below.

General Growth Properties, Inc. Price and EPS Surprise

General Growth Properties, Inc. Price and EPS Surprise | General Growth Properties, Inc. Quote

UDR - a residential REIT focused on managing, buying, selling, developing and redeveloping attractive residential real estate properties in targeted U.S. markets - has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). This stock also lacks the right combination required for an earnings beat prediction.

Notably, UDR has a vast experience in the residential real estate market. However, it had to tackle elevated deliveries in a number of its markets, including San Francisco and New York. This remains a concern as elevated levels of supply restricts a landlord's ability to demand more rents and results in lesser absorption. (Read More: What's in Store for UDR Inc. this Earnings Season? )

This stock has met estimates in each of the trailing four quarters, as demonstrated in the chart below:

United Dominion Realty Trust, Inc. Price and EPS Surprise

United Dominion Realty Trust, Inc. Price and EPS Surprise | United Dominion Realty Trust, Inc. Quote

Alexandria Real Estate Equities - an urban office REIT that focuses on collaborative science and technology campuses in premium innovation cluster location - has an Earnings ESP of 0.00% and a Zacks Rank #3. Our proven model does not conclusively show that Alexandria Real Estate is likely to post a positive surprise in the quarter as it does not have the right combination of rank and ESP.

Over the trailing four quarters, it posted an average beat of -0.19%, having beaten the Zacks Consensus Estimate in one, meeting in another and missing in the rest two quarters. This is reflected in the chart below:

Alexandria Real Estate Equities, Inc. Price and EPS Surprise

Alexandria Real Estate Equities, Inc. Price and EPS Surprise | Alexandria Real Estate Equities, Inc. Quote

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CBRE Group, Inc. (CBG): Free Stock Analysis Report

General Growth Properties, Inc. (GGP): Free Stock Analysis Report

United Dominion Realty Trust, Inc. (UDR): Free Stock Analysis Report

Alexandria Real Estate Equities, Inc. (ARE): Free Stock Analysis Report

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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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