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REITs to Watch for Earnings on May 3: FRT, NLY & More

We have entered another busy week of the ongoing reporting cycle, and the real estate investment trust (REIT) space is buzzing with activity. In fact, there is a deluge of Q1 earnings releases this week, with Federal Realty Investment TrustFRT , Annaly Capital Management, Inc.NLY , CyrusOne Inc.CONE , Life Storage, Inc.LSI and Park Hotels & Resorts Inc.PK , reporting their numbers on May 3.

Admittedly, the rate hike issue was consistent in the quarter and investors' cautious approach prevented gains from the REIT industry in the first three months of the year. However, with underlying asset categories and the location of properties playing a crucial role in determining the performance of REITs, not all players in the space have equally excelled or fallen behind. But, yes, supply issues cropped up in certain asset types as well as specific markets in the first quarter.

In fact, per a study by the commercial real estate services' firm - CBRE Group Inc. CBG - the overall U.S. industrial real estate market remained upbeat in first-quarter 2017, with an essentially unchanged national availability rate despite increased supply.

On the other hand, the overall office vacancy rate moved up modestly by 10 basis points to 13.0% in Q1 amid increased supply, according to a report from CBRE. Despite an overall increase, in almost half of the office markets, vacancy level continued to decrease. In fact, the national office vacancy rate remains close to its post-recession low, per the report. Growth in cloud computing, Internet of Things and big data are not only helping tech companies, these are also driving demand for data center REITs.

However, dwindling mall traffic and store closures amid aggressive growth in online sales kept retail REITs on tenterhooks. Also, an increasing number of deliveries of new units in a number of key markets and elevated concession activity have raised concerns for some residential REIT stocks.

Therefore, surprises might be in store for some REITs while others may disappoint 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.

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

Retail REIT, Federal Realty Investment Trust 's portfolio of premium retail assets - mainly situated in the major coastal markets from Washington, D.C. to Boston, San Francisco and Los Angeles - along with a diverse tenant base, positions it well for decent growth.

However, it has an Earnings ESP of 0.00% and a Zacks Rank #3. Although a favorable rank increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings beat.

Notably, mall traffic continues to dwindle amid a rapid shift in customers' shopping preferences with non-store sales rising significantly. This has become a pressing concern for retail REITs like Federal Realty. Moreover, the company expects first-quarter funds from operations ("FFO") per share to be lower sequentially. This is because of an increase in its anchor repositioning strategies. (Read more: Federal Realty to Post Q1 Earnings: What's in Store? )

Federal Realty exceeded estimates in three quarters and missed on the other occasion, resulting in an average positive surprise of 0.36%, for the trailing four quarters. This is depicted 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

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.

It has an Earnings ESP of +3.33% and a Zacks Rank #3. Notably, a positive ESP is a major indicator of a likely positive surprise. Moreover, this combination makes us reasonably confident of a positive surprise this season. You can see the complete list of today's Zacks #1 Rank stocks here .

Over the trailing four quarters, Annaly Capital exceeded estimates in one, met in the other two and missed on another occasion. The company posted an average negative surprise of 0.67%. This is depicted in the graph below.

Annaly Capital Management Inc Price and EPS Surprise

Annaly Capital Management Inc Price and EPS Surprise | Annaly Capital Management Inc Quote

CyrusOne Inc. is a real estate investment trust engaged in providing highly reliable enterprise-class, carrier-neutral data center properties. The company provides mission-critical data center facilities that protect and ensure the continued operation of IT infrastructure for several customers, including Fortune 1000 companies. This Zacks Rank #3 stock has an Earnings ESP of +2.94% and we expect this stock to beat expectations in the to-be-reported quarter.

CyrusOne has also been a steady performer. It has exceeded estimates in each of the trailing four quarters, with an average beat of 7.74%. This is depicted in the graph below.

CyrusOne Inc Price and EPS Surprise

CyrusOne Inc Price and EPS Surprise | CyrusOne Inc Quote

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 #4 and an Earnings ESP of -0.79%. 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.

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.

Life Storage has a mixed track record of surprises. In fact, it missed expectations in two of the trailing four quarters and exceeded in the other two, with an average positive surprise of 0.16%. This is shown in the chart below.

Life Storage, Inc. Price and EPS Surprise

Life Storage, Inc. Price and EPS Surprise | Life Storage, Inc. Quote

Park Hotels & Resorts is a lodging REIT with a wide range of hotels and resorts. Its portfolio includes 67 premium-branded hotels and resorts with more than 35,000 rooms in key domestic and international markets with high barriers to entry.

Presently, Park Hotels has a Zacks Rank #4 and an Earnings ESP of +3.18%. Though a positive ESP is a significant indicator for an earnings beat, we also need to have a favorable Zacks Rank to be reasonably confident for a positive surprise.

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Life Storage, Inc. (LSI): Free Stock Analysis Report

Annaly Capital Management Inc (NLY): Free Stock Analysis Report

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

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

CyrusOne Inc (CONE): Free Stock Analysis Report

Park Hotels & Resorts Inc. (PK): 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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