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REITs Queued for Q2 Earnings on Jul 30: ARE, AVB, SBAC & More

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We are in the midst of one of the busiest weeks of the current reporting cycle and the real estate investment trust (REIT) industry is buzzing with activity. In fact, a number of firms are lined up for their earnings releases on Jul 30, including Alexandria Real Estate Equities ARE, Avalon Bay Communities, Inc. AVB, SBA Communications Corporation SBAC, Simon Property Group SPG, UDR Inc. UDR and Vornado Realty Trust VNO.

No doubt, the recent rate hikes have kept investors in the REIT space worried to some extent. This is because REITs depend on debt for their business, and pay high and consistent dividend. Thus, a higher rate affects the present value of future cash flows.

Nevertheless, with the most recent interest-rate hike, the Fed signals that the economy is growing at a ‘solid’ pace. Hence, economic strength and healthy consumer sentiment will likely mitigate the impact of higher interest rates. Further, demand for a number of asset categories is expected to have displayed strength in the April-June quarter.

Therefore, surprises might be in store for some REITs, while others might disappoint this earnings season. So, let’s have a close look at the factors which are expected to have played a key role in the above-mentioned REITs’ second-quarter performance.

Alexandria Real Estate Equities is a Pasadena, CA-based urban office REIT, which primarily focuses on collaborative life-science and technology campuses and office properties.Fundamentals of the office real estate market remained strong in the June-end quarter. In fact, going by numbers, per a study by the commercial real estate services firm, CBRE Group Inc. CBRE, net absorption for Q2 in the U.S office market increased by more than double sequentially.

Nonetheless, new supply for the second quarter exceeded the 10-million-square-foot mark, totaling 11.1 million square feet of space, with 60% of these deliveries pre-leased. Although this underscores elevated demand for premier office space in major office markets, pre-leasing activity mellowed down as compared to the previous quarter.

In addition, Alexandria’s bottom-line results will likely display favorable impact of the company’s strategy to sell non-core operating assets and non-strategic land parcels in a bid to finance pre-leased value-creation development and redevelopment projects.

The graph below depicts its performance over the trailing four quarters:

Alexandria Real Estate Equities, Inc. Price and EPS Surprise
 

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

According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase its odds of an earnings surprise.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

In fact, the chances of the company beating the Zacks Consensus Estimate are less, even though it has a Zacks Rank of 3. This is because it has an Earnings ESP of -0.15% (Read more: Alexandria Gears Up for Q2 Earnings: What to Expect?)

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vornado has been striving to reposition its portfolio in New York, of late, to emerge as an office and retail REIT, with a concentration of high-quality assets in New York City. Notably, its Q2 performance is expected to reflect benefits from healthy fundamentals in the office real estate space.

In fact, occupancy at Vornado’s New York office portfolio is expected to have remained at a healthy level of 97%, unchanged from the prior-quarter reported tally.

Vornado will be realizing profit of $16 million relating to changes in fair value of marketable securities. Furthermore, a net gain of $23.6 million from the sale of 27 Washington Square North, for $45 million, will be recorded, although it will not be included in Q2 funds from operation (FFO) reporting.

In addition to the above, the company will record $5.5 million in income and FFO as profit participation from the sale of 701 Seventh Avenue. Lastly, Vornado's results will include a net loss of $0.4 million from other items.

These items will increase the company’s FFO per share by 12 cents. However, this amount will be excluded in the adjusted FFO plus assumed conversions per share figure. The Zacks Consensus Estimate for the to-be-reported quarter’s FFO per share is pegged at 96 cents.

While the company has surpassed earnings estimate in all four trailing quarters, it is well poised to continue its beat streak, with a Zacks Rank of 3 and an Earnings ESP of +1.30%. (Read more: Can Vornado Maintain its Earnings Beat Streak in Q2?)

Vornado Realty Trust Price and EPS Surprise
 

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


Residential REIT Avalon Bay Communities is well poised to grow on the back of rising demand from household formation and favorable demographics. Also, increasing consumer confidence, driven by job growth, higher wages and a healthier balance sheet, promises bright prospects for this Arlington, VA-based REIT.

Nonetheless, the latest report from the real estate technology and analytics firm, RealPage, Inc., suggests that rent growth in the U.S. apartment market is slowing down. In fact, with several markets witnessing flat rents, U.S. apartment rents increased at an annual pace of just 2.3%, as of mid-2018 — denoting the slowest pace in eight years. While a mid-2018 occupancy level of 95.0% is still healthy, the deceleration in rent growth suggests that a competitive leasing environment is fast building up amid elevated supply, and curbing landlords’ pricing power.

This high supply is feared to strain the company’s rental rates, going forward. Hence, growth in its stabilized portfolio is likely to remain modest in the upcoming period. 

The graph below depicts its performance over the trailing four quarters:

AvalonBay Communities, Inc. Price and EPS Surprise
 

AvalonBay Communities, Inc. Price and EPS Surprise | AvalonBay Communities, Inc. Quote

With a Zacks Rank of 3 and Earnings ESP of -0.75%, chances of the company beating estimates this quarter is less likely. (Read more: What's in Store for AvalonBay This Earnings Season?)

Another residential REIT, UDR Inc, is likely to benefit from its vast experience in the residential real estate market. The company has a superior portfolio in targeted U.S. markets and adheres to a disciplined capital allocation. These are likely to have driven results in the to-be-reported quarter. Specifically, the company is anticipated to benefit from favorable demographic trends, moving ahead. There is a steady demand for rental apartments from new millennial households and empty nesters. Along with this, a healthy job market is estimated to spur demand for apartments.

As such, occupancy is likely to be elevated and the Zacks Consensus Estimate for second-quarter revenues is currently pegged at $253.9 million, indicating 2.4% year-over-year projected growth. Also, the estimate for same-store net operating income (NOI) growth is currently pegged at 2.89% for the quarter.

The graph below depicts its performance over the trailing four quarters:

United Dominion Realty Trust, Inc. Price and EPS Surprise

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

With a Zacks Rank of 2 (Buy) and an Earnings ESP of +1.61%, the company is well poised to beat estimates this season. (Read more: Will Favorable Demographic Trends Support UDR Q2 Earnings?)

The Q2 performance of SBA Communications, a preeminent owner and operator of wireless communications infrastructure, is expected to display favorable impact of stellar growth in mobile subscribership. Notably, SBA Communications is expanding its tower portfolio while seeking new growth opportunities through enhancement of the company’s scale of operations in international markets. It is offering wireless service providers assistance in developing networks.

Operating profit from Site Leasing for the company in the quarter under review is expected to increase to $339 million from $314 million reported in the year-earlier quarter, while the same from Site Development is likely to improve to $4.9 million from $4.3 million. However, the company’s financials are likely to be affected by high customer concentration and consolidation in the wireless industry. Further,adjusted earnings per share are pegged at 18 cents, slightly down from 19 cents reported a year ago.

The graph below depicts its performance over the trailing four quarters:

SBA Communications Corporation Price and EPS Surprise

SBA Communications Corporation Price and EPS Surprise | SBA Communications Corporation Quote

In fact, the chances of the company beating the Zacks Consensus Estimate are less, even though it has a Zacks Rank #3. This is because it has an Earnings ESP of -12.09%. (Read more: Will SBA Communications Beat Q2 Earnings on Leasing?)

Retail REIT Simon Property is undertaking strategic measures to help online retailers fortify their physical presence, besides taking steps to support omni-channel strategy. This bodes well amid the lackluster retail environment.

In fact, recent data form Reis shows that the national retail vacancy rate marginally increased to 10.2% in second-quarter 2018 — underlining store closures of bankrupt toy retailer, Toys “R” Us Inc. — while national average asking rents edged 0.2% higher.

The company, which has been actively restructuring its portfolio, is aimed at premium acquisitions and transformative redevelopments. Further, this May, Simon Property announced the launch of a $4+ billion investment plan to transform its properties aimed at creating value and drive footfall. The transformational plans included addition of hotels, restaurants, residences and luxury stores. Amid these, the Zacks Consensus Estimate for Q2 revenues is currently pegged at $1.38 billion, reflecting a projected increase of 1.6% year over year.

The graph below depicts its performance over the trailing four quarters:

Simon Property Group, Inc. Price and EPS Surprise

Simon Property Group, Inc. Price and EPS Surprise | Simon Property Group, Inc. Quote

In fact, the chances of the company beating the Zacks Consensus Estimate are less, even though it has a Zacks Rank of 3. This is because it has an Earnings ESP of -0.30%. (Read more: Simon Property to Post Q2 Earnings: What to Expect?)

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SBA Communications Corporation (SBAC) : Free Stock Analysis Report
 
Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
 
AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report
 
United Dominion Realty Trust, Inc. (UDR) : Free Stock Analysis Report
 
Vornado Realty Trust (VNO) : Free Stock Analysis Report
 
Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report
 
CBRE Group, Inc. (CBRE) : Free Stock Analysis Report
 
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