Can GGP Counter Impact Of Online Retail Boom In Q4 Earnings?

GGP Inc. (NYSE:GGP) is slated to report fourth-quarter 2017 results on Feb 7, before the market opens. Both its funds from operations (FFO) per share and revenues are anticipated to improve year over year.

Last quarter, this retail real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share. Results indicated growth in same-store net operating income (NOI) from the prior-year period.

In the trailing four quarters, the company surpassed estimates in one occasion and met in the other three, the average positive surprise being 3.6%. This is depicted in the graph below.

Let’s see how things have shaped up for this announcement.

Factors to Consider

GGP Inc. has a solid portfolio of high-quality retail properties across attractive locations in the United States. Therefore, amid an improving economy, these retail properties have the capability to generate decent cash flows, given its cluster of renowned tenants.

Also, the holiday season turned out to be blissful for the retailers with upbeat consumer sentiment amid an improving economy, rising income and low unemployment level. Per government data, consumer spending remained robust during this season, with retail sales rising 0.9% and 0.4% in November and December, respectively.

However, the retail real estate market continued to bear the brunt as mall traffic continues to suffer amid a rapid shift in customers’ shopping preference through online channels, resulting in an increasing number of retailers joining the dot-com bandwagon. These have made retailers reconsider their footprint and eventually opt for store closures in recent years, while others unable to cope with competition are filing bankruptcies.

These have emerged as serious concerns for retail REITs, as it is limiting demand for the retail real estate space considerably. Moreover, the choppy retail real estate market situation is said to have led to tenants demanding substantial lease concessions, which mall landlords find unjustified.

GGP Inc. has been making efforts to counter such pressure through various initiatives. The company is focusing on omni-channel retailing to generate higher sales. Moreover, it is focusing on offering mall visitors with access to retail, dining and entertainment hubs in some of the best trade areas in the nation.

Such moves are strategic fits as these boost the shopping experience and enhance sales volume at tenant stores, consequently raising demand for the company’s assets. However, implementation of such measures requires significant upfront costs, which might impede near-term growth in profit margins.

In addition, the month of November witnessed increased shareholder activity in the retail real estate market, triggered by Brookfield Property Partners’ takeover offer for GGP Inc.

Amid these, the Zacks Consensus Estimate for revenues for the to-be-reported quarter is pegged at $651.7 million, reflecting projected growth of 6.8% from the year-ago period.

For fourth-quarter 2017, the company projects FFO per share in the range of 46-48 cents. The Zacks Consensus Estimate for the same is currently pegged at 47 cents, indicating projected growth of 9.3% year over year.

However, GGP Inc.’s activities during the quarter could not gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for FFO per share remained unchanged in a month’s time.

GGP Inc. stock has depreciated 3.1% in the past month versus the 7.1% loss incurred by its industry.

Earnings Whispers

Our proven model does not conclusively show that GGP Inc. will likely beat FFO estimates this time around. 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 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: GGP Inc. has an Earnings ESP of -0.46%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: GGP Inc. has a Zacks Rank #4 (Sell), which also reduces the predictive power of ESP.

Stocks That Warrant a Look

Here are a few stocks in the REIT space that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this time around:

CubeSmart (NYSE:CUBE) , slated to release fourth-quarter results on Feb 15, has an Earnings ESP of +1.10% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Weingarten Realty Investors (NYSE:WRI) , slated to release quarterly numbers on Feb 21, has an Earnings ESP of +0.34% and a Zacks Rank of 3.

EPR Properties (NYSE:EPR) , scheduled to report quarterly numbers on Feb 28, has an Earnings ESP of +0.69% and a Zacks Rank of 3.

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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