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REITs to Watch for Q3 Earnings on Oct 21: ELS, ACC and ADC

Zacks Equity Research

The Finance sector’s third-quarter earnings season has begun, with 36.8% of the group’s total market cap in the S&P 500 Index having already released their quarterly numbers. Per our earnings trends report, aggregate earnings for the Finance sector companies have declined 2.4% year over year, while revenues grew 2.9%. Nonetheless, 85.7% of these earnings have trumped EPS estimates, while 64.3% have outpaced revenue estimates. Considering the results posted by the sector at this stage in recent periods, this is an impressive proportion of positive EPS surprise.

A number of REITs are expected to release their third-quarter numbers on Oct 21, after the closing bell, including Equity Lifestyle Properties, Inc. ELS, American Campus Communities, Inc. ACC and Agree Realty Corporation ADC.

Notably, macro-economic conditions have been encouraging for commercial and residential REITs. Specifically, low inflation, moderate economic growth and declining interest rates are likely to have driven REITs’ performance in the quarter to be reported. Further, low cost of capital has rejuvenated acquisition pipelines, facilitating external growth. In addition, the reversal of long-term interest rates, primarily due to moderating economic growth and lower inflation expectation, is anticipated to been conducive to REITs' performance.

In fact, key REIT metrics — funds from operations (FFO) per share and dividend per share — have grown in 2019. This upbeat momentum is expected to have continued in the third quarter as well.

Let’s analyze the factors that are expected to have played a key role in the above-mentioned REITs’ third-quarter performance.

Equity Lifestyle owns and operates lifestyle-oriented properties consisting primarily of manufactured home and recreational vehicle communities. This strategic portfolio composition enables the company to enjoy steady and predictable revenues.

The manufactured housing sector is likely to have benefited from the rising housing shortage in the market. In fact, it is one of the cheapest, non-subsidized housing options in most markets, and has spurred demand for manufactured houses. In addition, increase in wages among blue-collar workers has aided the latest stellar growth for this sector.

Amid strong demand for its properties, the company is expected to have witnessed occupancy during the September-end quarter.

Further, the Zacks Consensus Estimate for the company’s third-quarter revenues is pegged at $265.1 million, reflecting 3.3% year-over-year growth.

However, competition has been intensifying amid solid fundamentals of the manufactured homes sector and a favorable demand-supply environment. This has resulted in a challenging acquisition market, making such opportunities scarce and less accretive.

Also, prior to the third-quarter release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the September-end quarter remained unchanged at 53 cents, over the past 30 days. Further, it indicates a decline of 48.5% year over year.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate thrice and met in the other, with an average positive surprise of 1.73%. The graph below depicts this surprise history:

Equity Lifestyle Properties, Inc. Price and EPS Surprise
 

Equity Lifestyle Properties, Inc. Price and EPS Surprise


Equity Lifestyle Properties, Inc. price-eps-surprise | Equity Lifestyle Properties, Inc. Quote

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Equity Lifestyle this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here.

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

Although Equity Lifestyle carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

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

Agree Realty primarily develops, acquires, owns and operates properties which are primarily leased to major national and regional retail companies under net leases.

Per data compiled by Reis, the national average asking rent as well as effective rent inched up 0.3% in third-quarter 2019. In addition, retail vacancy rate shrunk 10 basis points sequentially to 10.1%. Favorable industry-wide environment is expected to have facilitated rent and occupancy growth for Agree Realty in the quarter. 

The Zacks Consensus Estimate for the company’s third-quarter revenues is pegged at $47.3 million, reflecting 26.7% year-over-year growth.

Also, prior to the third-quarter earnings release, the company has been witnessing upward estimate revisions. As such, the Zacks Consensus Estimate for the quarter’s FFO per share moved up marginally north to 77 cents over the past week, reflecting analysts’ bullish sentiments. Also, it represents a year-over-year decline of 6.9%.

Over the last four quarters, the company beat the Zacks Consensus Estimate twice, met in another and missed in the other, coming up with an average positive surprise of 0.35%. The graph below depicts this surprise history:

Agree Realty Corporation Price and EPS Surprise
 

Agree Realty Corporation Price and EPS Surprise


Agree Realty Corporation price-eps-surprise | Agree Realty Corporation Quote

With an Earnings ESP of +0.56% and a Zacks Rank of 2, our proven model predicts an earnings beat for Agree Realty this season around.

American Campus Communities is one of the largest owners, managers and developers of high-quality student housing properties in the United States, in terms of beds owned and under management.

During the quarter under review, the company unveiled LightView, a new student living community, together with Northeastern University and the City of Boston. This was an innovative approach to invest in student housing through public-private partnerships with universities. The property was fully leased before its opening.

Additionally, since the transaction was structured under the American Campus Equity (ACE) program, it allowed the company to deliver premium student housing properties at low development costs and operating expenses, making rents more affordable for students.

Such transactions are a strategic fit as these help the company expand its portfolio, and enjoy favorable leasing and occupancy.

In fact, the Zacks Consensus Estimate for the company’s third-quarter revenues is pegged at $226.5 million, suggesting 6.1% year-over-year growth.

Moreover, prior to the third-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for third-quarter 2019 remained unchanged at 46 cents, over the past 30 days. It also indicates 4.5% year-over-year growth.

Over the preceding four quarters, the company outpaced estimates thrice and missed on one occasion, the average positive surprise being 2.7%. The graph below depicts this surprise history:

American Campus Communities Inc Price and EPS Surprise
 

American Campus Communities Inc Price and EPS Surprise


American Campus Communities Inc price-eps-surprise | American Campus Communities Inc Quote

Our proven model doesn’t conclusively predict an earnings beat in terms of FFO per share for American Campus Communities in the third quarter. Although it carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

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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Agree Realty Corporation (ADC) : Free Stock Analysis Report
 
American Campus Communities Inc (ACC) : Free Stock Analysis Report
 
Equity Lifestyle Properties, Inc. (ELS) : Free Stock Analysis Report
 
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