General Growth's (GGP) Q3 Earnings: What's In The Cards?

Retail real estate investment trust (“REIT”) General Growth Properties, Inc. (NYSE:GGP) is expected to report third-quarter 2016 results on Oct 31, after the market closes.

Last quarter, the company delivered in-line results. For the trailing four quarters, General Growth Properties beat estimates in three quarters, posting in-line results in one, with an average positive surprise of 4.88%. The Zacks Consensus Estimate for third-quarter funds from operations (“FFO”) is currently pegged at 35 cents.

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

Factors to Consider

General Growth Properties holds a strong portfolio of high-quality retail properties across attractive locations. The company’s portfolio is complemented by flagship urban retail properties that are also in demand. Moreover, its solid tenant base and portfolio repositioning efforts augur well.

Per the latest CBRE Group, Inc. (NYSE:CBG) study, during the third quarter, average availability of retail space was 10.4%, down 20 basis points sequentially. However, demand for retail space in the country continues to grow as new construction remains relatively muted and retailers are combining their online and bricks-and-mortar operations.

However, General Growth Properties faces competition from alternative types of retailing such as catalogs and e-Commerce websites. While the company is striving to counter such pressure through various initiatives, the implementation of such measures requires a decent upfront cost. Consequently, this would limit any robust growth in its profit margins in the near term.

General Growth Properties’ activities during the quarter could not gain analysts’ confidence. Consequently, the Zacks Consensus Estimate remained unchanged over the last seven days.

Earnings Whispers

Our proven model does not conclusively show that General Growth Properties will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 35 cents. Hence, the Earnings ESP, which represents a difference between them, is 0.00%.

Zacks Rank: General Growth Properties has a Zacks Rank #3. This when combined with 0.00% ESP makes surprise prediction uncertain.

Note that, we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are three other REITs that you may want to consider as our model shows that they also have the right combination of elements to post an earnings beat this quarter:

Ashford Hospitality Prime, Inc. (NYSE:AHP) , scheduled to release results on Nov 2, has an Earnings ESP of +9.76% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Armada Hoffler Properties, Inc. (NYSE:AHH) , slated to release earnings results on Nov 1, has an Earnings ESP of +4.17% and a Zacks Rank #3.

Post Properties Inc. (NYSE:PPS) , slated to release earnings results on Oct 31, has an Earnings ESP of +1.24% and a Zacks Rank #2

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. All earnings per share numbers presented in this write up represent FFO per share.

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