Markets

REITs to Watch for Q4 Earnings on Feb 13: VNO, HCP, FRT, NNN

Even as we stand in the final stretch of the current reporting cycle, we see a lot of activity in the real estate investment trust (REIT) space. In fact, next week, results are slated to pour in from a lot of REITs, with Vornado Realty TrustVNO , HCP Inc.HCP , Federal Realty Investment TrustFRT and National Retail Properties, Inc.NNN , scheduled to report their numbers on Feb 13.

In the broader market, as of Thursday, Feb 9, including all of the morning's releases, results are already out for 346 S&P 500 members and total earnings for these 346 index members have increased +5.8% on +4.6% higher revenues, with 68.8% beating EPS estimates and 53.8% exceeding revenue expectations. (Read more: Fewer Beats, But Q4 Growth is Highest in 2 Years )

However, the REIT industry has delivered a mixed performance so far, with results from some of the top notch REIT stocks either matching estimates or beating; while some other falling shy of expectations. On one side, SL Green Realty Corp. SLG narrowly missed expectations on lower revenues; while on the other side, growth in net operating income from the newly developed and existing operating communities helped AvalonBay Communities, Inc. AVB deliver a positive surprise of around 1%. Again, Industrial REIT like Prologis, Inc. PLD came up with an in-line result.

Obviously, fourth-quarter 2016 was subject to a lot of political uncertainty, with the presidential election taking place in the month of November. In addition, there had been bond rout amid Trump's promise of a robust fiscal stimulus. Above all, the much anticipated rate hike in December, also remained a dominant theme in the quarter. However, rates are still very low and REITs have already managed their balance sheet well and are focused on lowering debt ratios.

However, underlying asset category dynamics and location of properties played a key role in the operating performance of the REITs. Therefore, the office and industrial asset categories hogged the limelight for experiencing a 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.

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 a 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 four REITs set to release their Q4 results on Monday:

Vornado Realty Trust is engaged into owning and managing office, and retail real estate properties. Its portfolio is concentrated in two of the nation's key markets, New York City and Washington, DC. The company also has premier asset in Chicago and San Francisco. It carries a Zacks Rank#3 and an Earnings ESP of 0.00%. Thus, despite having a favorable Zacks Rank, the zero ESP makes surprise prediction difficult.

Vornado's high quality office properties, concentrated over a few select high barrier-to-entry geographic markets, offer solid growth prospects for the company. Nevertheless, as part of its portfolio-repositioning efforts, Vornado has been aggressively disposing its assets. Though such efforts to streamline its business are commendable, the earnings dilutive effects of these moves cannot be avoided. (Read more: Vornado Q4 Earnings: What's in Store for the Stock? )

However, Vornado does not have a solid track record of surprises. In fact, it has missed expectations in three of the trailing four quarters and exceeded in the other, with an average negative surprise of 3.28%. This is shown in the chart below.

Vornado Realty Trust Price and EPS Surprise

Vornado Realty Trust Price and EPS Surprise | Vornado Realty Trust Quote

HCP Inc. is a healthcare REIT and owns a large-scale portfolio diversified across various sectors, led by senior housing, life science and medical office. HCP has an Earnings ESP of -1.75% 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 .

HCP has a diversified, well-balanced portfolio in the healthcare sector. The company is likely to benefit in the to-be-reported quarter from rising healthcare spending and a growing aging population. Further, strategic investments, tie-ups and acquisitions are anticipated to drive decent cash flows. However, growth might be hindered by cut-throat competition in its markets. In addition, there has been an increased supply in certain health care asset categories. Dilutive impact on earnings from sale of assets is also unavoidable. (Read more: HCP Inc. Q4 Earnings: What's in Store for the Stock? )

Over the past four quarters, the company posted an average beat of 2.42%, having beaten the Zacks Consensus Estimate in three and meeting in another quarter. This is depicted in the chart below:

HCP, Inc. Price and EPS Surprise

HCP, Inc. Price and EPS Surprise | HCP, Inc. Quote

Federal Realty Investment Trust is an owner, operator & redeveloper of retail properties in the nation's best markets. The stock has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). This stock lacks the right combination required for an earnings beat prediction.

Admittedly, the increasing trend in online shopping has raised competition and is hurting the demand for retail real estates. Further, hike in interest rate poses a challenge. However, Federal Realty's portfolio of premium retail assets, along with a diverse tenant base, positions it well for decent growth. (Read more: Is Federal Realty's Q4 Earnings Likely to Disappoint? )

Federal Realty has surpassed estimates in two of the trailing four quarters, with an average beat of just 0.01%. This is reflected in the chart below:

Federal Realty Investment Trust Price and EPS Surprise

Federal Realty Investment Trust Price and EPS Surprise | Federal Realty Investment Trust Quote

National Retail Properties invests in single tenant net-leased retail properties throughout the U.S. This Zacks Rank #3 stock has an Earnings ESP of 0.00%. This stock also lacks the right combination required for an earnings beat prediction.

The stock has exceeded estimates in two of the trailing four quarters and met in the other occasions, with an average beat of 1.28%, as demonstrated in the chart below:

National Retail Properties Price and EPS Surprise

National Retail Properties Price and EPS Surprise | National Retail Properties Quote

Where Do Zacks' Investment Ideas Come From?

You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Federal Realty Investment Trust (FRT): Free Stock Analysis Report

National Retail Properties (NNN): Free Stock Analysis Report

AvalonBay Communities, Inc. (AVB): Free Stock Analysis Report

HCP, Inc. (HCP): Free Stock Analysis Report

ProLogis, Inc. (PLD): Free Stock Analysis Report

Vornado Realty Trust (VNO): Free Stock Analysis Report

SL Green Realty Corporation (SLG): Free Stock Analysis Report

To read this article on Zacks.com click here.

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.

In This Story

AVB NNN FRT PLD

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More