Markets

REITs to Watch for Q4 Earnings on Jan 30: DRE, ESS, MAA & AGNC

Only a handful of real estate investment trusts (REIT) have reported their quarterly figures, so far. Nonetheless, the next week will be eventful for REITs, with a number of firms queued for their earnings releases. Among those, Duke Realty Corporation DRE , Essex Property Trust, Inc. ESS , Mid-America Apartment Communities, Inc. MAA and AGNC Investment AGNC are slated to repor t earnings figures on Jan 30.

Although it is well known that REITs perform well during periods of tightening, the industry has been impacted by the Federal Reserve's consecutive rate hikes. During the fourth quarter, the Vanguard Real Estate ETF VNQ witnessed a decline of 5.6%. While it is typical for REITs to fall before snapping back when rates rise, high market volatility has prevented the climb, lately.

While economic improvement and recovery in the job market are expected to have driven performance of industrial and residential REITs in the fourth quarter, higher mortgage rates and lower housing affordability might have affected operations of mortgage REITs.

Therefore, surprises might be in store for some REITs, while others may disappoint this earnings season. Per the quantitative Zacks model, stocks with the perfect combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), and a positive Earnings ESP have substantially higher chances of beating estimates. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

You can see the complete list of today's Zacks #1 Rank stocks here.

Let us take a look at how the above-mentioned REITs are placed ahead of their quarterly releases on Jan 30:

Bethesda, MD-based AGNC Investment focuses on leveraged investments in agency MBS (mortgage backed securities). In the Dec-end quarter, it is expected to have benefited from an impressive financial position. Notably, it enjoys solid access to attractive funding across a broad spectrum of counterparties and financing conditions.

However, the consecutive rate hikes are expected to have hindered its fourth-quarter and 2018 performance. Notably, higher interest rate might impede the company's bottom-line performance and its book value as well.

Hence, there is lack of any solid catalyst prior to the fourth-quarter earnings release. As such, the Zacks Consensus Estimate of net spread and dollar roll income per common share for the to-be-reported quarter remained unrevised at 61 cents, over the past month. Furthermore, it reflects a year-over-year decline of 1.6%. (Read more: AGNC Investment to Post Q4 Earnings: What's in Store? )

AGNC Investment has a Zacks Rank of 3 and Earnings ESP of +0.83%, making us reasonably confident of a positive surprise.

The company's surprise history is depicted in the chart below:

AGNC Investment Corp. Price and EPS Surprise

AGNC Investment Corp. Price and EPS Surprise | AGNC Investment Corp. Quote

Essex Property is likely to have leveraged on favorable demographic trends, household formation, recovering economy and job-market growth in its markets. In fact, the company's substantial exposure to the West Coast market offers ample scope to boost its top line.

Notably, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $351.8 million, marking an expected increase of 1.94% year over year. Further, the company estimates core FFO per share of $3.13-$3.23 for the quarter. The Zacks Consensus Estimate for the same is currently pinned at $3.19.

Yet, in a number of the company's markets, apartment deliveries will likely have remained elevated in the to-be-reported quarter, curtailing its ability to command more rent and resulting in lesser absorption. Additionally, periodic disruptions to pricing takes place with multiple apartment lease-ups occurring within a submarket. (Read more: What's in the Offing for Essex Property's Q4 Earnings? )

Currently, Essex Properties has an Earnings ESP of -0.34% and a Zacks Rank of 3. So, we can't conclusively predict a likely earnings beat.

The company's surprise history is depicted in the chart below:

Essex Property Trust, Inc. Price and EPS Surprise

Essex Property Trust, Inc. Price and EPS Surprise | Essex Property Trust, Inc. Quote

Mid-America Apartment Communities , commonly known as MAA, is expected to have gained from accelerated rent growth and elevated occupancy level amid robust demand for rental units during the Oct-Dec quarter. In fact, the Zacks Consensus Estimate for fourth-quarter 2018 revenues is pinned at $400.2 million and reflects a year-over-year improvement of 4.6%.

However, hike in interest rate during the fourth quarter is expected to have escalated borrowing cost for the company and affected its ability to purchase or develop real estate. In fact, MAA follows a redevelopment program at selected residential communities throughout the portfolio and also has an active development pipeline that is largely unfunded. Amid rising interest-rate environment, we expect its development and financing activities to have slowed down.

The Zacks Consensus Estimate for fourth-quarter 2018 FFO per share remained unchanged at $1.55, over the last 30 days, indicating year-over-year growth of 3.3%. (Read more: Mid-America Apartment Q4 Earnings: What's in the Offing? )

Although MAA has an Earnings ESP of +0.21%, a Zacks Rank of 4 (Sell) makes it difficult to predict an earning beat for the company this season.

The company's surprise history is depicted in the chart below:

Mid-America Apartment Communities, Inc. Price and EPS Surprise

Mid-America Apartment Communities, Inc. Price and EPS Surprise | Mid-America Apartment Communities, Inc. Quote

Duke Realty is expected to have experienced high occupancy, active leasing and healthy rent levels across a number of properties during the fourth quarter. Notably, the industrial real estate market is gaining strength amid solid U.S. economy, job-market gains, thriving e-commerce market, high consumption levels and robust consumer confidence. Demand for warehouses, distribution centers and other industrial property remains strong amid the paradigm shift of consumers opting for online shopping. These industry tailwinds are anticipated to have bolstered the company's Dec-end results.

Amid these, the Zacks Consensus Estimate for the fourth-quarter revenues is currently pinned at $202.8 million, indicating 13% increase from the prior-year quarter.

Nonetheless, the company has been disposing non-strategic assets in a bid to focus on industrial properties. While such efforts are a strategic fit for the long term, it will likely affect the company's fourth-quarter results and dampen its profitability. In fact, for 2018, the company anticipates dispositions of $500-$600 million.

Also, since it has a number of ongoing development projects, amid rising interest-rate environment, we expect its development and financing activities to have slowed down. (Read more: Duke Realty Gears Up for Q4 Earnings: What to Expect? )

The company's surprise history is depicted in the chart below:

Duke Realty Corporation Price and EPS Surprise

Duke Realty Corporation Price and EPS Surprise | Duke Realty Corporation Quote

Although the company carries a Zacks Rank of 3, an Earnings ESP of 0.00% makes it difficult to predict an earnings beat for the company this season.

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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Vanguard Real Estate ETF (VNQ): ETF Research Reports

AGNC Investment Corp. (AGNC): Free Stock Analysis Report

Essex Property Trust, Inc. (ESS): Get Free Report

Mid-America Apartment Communities, Inc. (MAA): Free Stock Analysis Report

Duke Realty Corporation (DRE): 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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