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REITs to Watch for Q2 Earnings on Jul 26: DLR, KIM & CUBE

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We are in the midst of one of the busiest weeks of the current reporting cycle and the REIT industry is buzzing with activity. In fact, tomorrow, a number of firms are lined up for their earnings releases and among those are data-center REIT Digital Realty Trust DLR, retail REIT Kimco Realty Corporation KIM and self-storage REIT CubeSmart CUBE.

Notably, data-center REITs are expected to have continued to experience a thriving market in the second quarter with growth in cloud computing, Internet of Things and big data, and an increasing number of companies opting for third-party IT infrastructure. These factors, along with an improved outlook for economic growth, are anticipated to provide substantial growth impetus to data-center REITs. However, aggressive pricing pressure is likely to have continued in the to-be-reported quarter.

Also, despite several preeminent retail bankruptcy filings and record-high defaults by retail corporates, 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. Admittedly, though store closures and retailer bankruptcies continue to rule the market, retail landlords are now countering this challenge. Retail REITs are now avoiding heavy dependence on apparel and accessories, and instead expanding their dining options, opening movie theaters, offering recreational facilities and opening fitness centers, in particular, as these traffic are Internet resistant.

Moreover, the self-storage industry is anticipated to experience solid demand backed by favorable demographic changes, improving job market and rising incomes, as well as events like marriages, shifting, death, and even divorce. Nevertheless, increased supply of self-storage units in a number of markets during the April-June quarter is predicted to have affected this industry’s performance.

Let us take a look at how the above-mentioned REITs are placed ahead of their quarterly releases.    

San Francisco, CA-based Digital Realty Trust supports the data-center, colocation and interconnection strategies of over 2,300 firms across its secure, network-rich portfolio of data centers situated in North America, Europe, Asia and Australia.

The company is expected to have gained from strong demand for data centers through accretive acquisitions and development efforts. The Zacks Consensus Estimate for total revenues is $760.9 million, indicating growth of 34.4% year over year. Moreover, the Zacks Consensus Estimate for FFO per share of $1.61 indicates an increase of nearly 4.6% from the prior-year quarter. However, there is aggressive pricing pressure in its industry. Further, with a substantial debt burden, interest expense burden remains a concern. (Read more: Key Factors to Impact Digital Realty's Q2 Earnings)

This Zacks Rank #3 (Hold) stock has an Earnings ESP of -0.57%. Our proven model does not conclusively show that Digital Realty will likely beat estimates this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 for this to happen. However, this is not the case here.

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

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in all occasions, the average beat being 2.14%. This is depicted in the graph below:

Digital Realty Trust, Inc. Price and EPS Surprise
 

Digital Realty Trust, Inc. Price and EPS Surprise | Digital Realty Trust, Inc. Quote

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

New Hyde Park, NY-based retail REIT Kimco is engaged in the ownership and operation of open-air shopping centers. The company is on track with its 2020 Vision that envisages the ownership of high-quality assets, concentrated in major metro markets, which offer several growth levers.

In fact, amid transformation in the retail landscape, Kimco remains well poised to counter the retail blues, with focus on service and experiential tenants, and omni-channel players who generate 56% and 39% of annual base rent, respectively. In addition, the company is aimed at expanding its small shops portfolio which enjoy frequent customer traffic and are Internet resistant. As such, amid upbeat consumer confidence and improving economy, the company is likely to experience high occupancy and healthy leasing spreads.

Earlier this July, Kimco provided an update of its Q2 transaction activity and reported the sale of 17 shopping centers, aggregating 2.7 million square feet of space, in the quarter. With these dispositions, the company’s second-quarter sales volume has surpassed $330 million and for the first half of the year, the same aggregates $556 million. While such efforts are encouraging for the long term, the dilutive effect on earnings from high disposition activity cannot be averted in the near term.

In fact, the Zacks Consensus Estimate for second-quarter revenues is currently pegged at $290.3 million, reflecting a 0.9% estimated decline from the prior-year period. Also, the Zacks Consensus Estimate of FFO per share of 36 cents for the quarter indicates a year-over-year drop of 5.3%.

Nevertheless, Kimco has a Zacks Rank of 3 and Earnings ESP of +0.98%. A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise. (Read more: What's in the Cards for Kimco This Earnings Season?)

Over the trailing four quarters, Kimco beat estimates in two occasions and posted in-line results in the other two, recording an average beat of 1.37%. The graph below depicts this surprise history:

Kimco Realty Corporation Price and EPS Surprise
 

 

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

CubeSmart is a real estate company focused on the ownership, operation, acquisition and development of self-storage facilities in the United States.

Amid healthy fundamentals in the self-storage industry, CubeSmart is expected to have recorded growth in revenues and FFO per share in the to-be-reported quarter. In fact, the Zacks Consensus Estimate for second-quarter revenues of $147.0 million indicates 6.1% year-over-year growth. Also, the Zacks Consensus Estimate for FFO per share is currently pegged at 41 cents, denoting a projected rise of 5.1% from the prior-year quarter.

However, the company’s activities during the quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for FFO per share for the second quarter remained unchanged, over the past month. In fact, though it has a favorable Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Over the preceding four quarters, the company met the FFO per share estimates in two occasions and beat in the other two, resulting in an average positive surprise of 1.91%. This is depicted in the graph below:

CubeSmart Price and EPS Surprise
 

CubeSmart Price and EPS Surprise | CubeSmart Quote

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Kimco Realty Corporation (KIM) : Free Stock Analysis Report
 
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