REITs To Look For In Q2 Earnings: APLE, SFR, CLNY, SHO, PKY

Though we are in the final stretch of the current reporting cycle, it is still raining earnings in the real estate investment trust (REIT) industry. In fact, on Monday, Aug 8, Apple (NASDAQ:AAPL) Hospitality REIT, Inc. (NYSE:APLE) , Colony Starwood Homes (NYSE:SFR) , Colony Capital, Inc. (NYSE:CLNY) , Sunstone Hotel Investors Inc. (NYSE:SHO) and Parkway Properties Inc. (NYSE:PKY) , are slated to come up with their quarterly figures.

The earnings season has been mixed so far. While REITs continued to benefit broadly from the low-rate environment, their individual market dynamics also played a crucial role in their performance, as usual, in the quarter. Also, an improving economy – though at a modest pace – provided the push and this helped REITs like Prologis, Inc. (NYSE:PLD) , Simon Property Group Inc. (NYSE:SPG) and The Macerich Company (NYSE:MAC) to come up with better-than-expected scores in Q2.

However, not all REITs were equally successful in overshadowing the estimates, with companies like Public Storage (NYSE:PSA) and Vornado Realty Trust (NYSE:VNO) , falling short of market expectations. Eventually, an oversupply in the residential sector – particularly in the New York and the San Francisco region – cast a pall on the performances of the residential REITs.

To predict the chances of a beat this quarter, we relied on the Zacks methodology, combining a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive Earnings ESP .

Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Research shows that with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70% for the stocks. Conversely, 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.

Let’s now check how the above-mentioned companies are expected to perform, when they report their second-quarter 2016 results on Aug 8, 2016.

Apple Hospitality REIT boasts of a portfolio of upscale, select service hotels in the U.S. These properties are situated in urban, high-end suburban and developing markets throughout 32 states. The company has an Earnings ESP of 0.00% and a Zacks Rank #2. Despite a favorable rank, its zero ESP makes surprise prediction difficult.

Colony Starwood Homes is into ownership and operations of single-family rental homes primarily in the United States. Specifically, the company acquires, renovates, leases, maintains and manages single-family homes. The company has an Earnings ESP of -5.13% and a Zacks Rank #3. Though Colony Starwood Homes enjoys a favorable Zacks rank, its chances of beat is lowered for a negative ESP.

Colony Capital, Inc. is a global real estate and investment management firm. Its investment portfolio is primarily composed of real estate equity, real estate debt, and investment management of company-sponsored private equity funds and vehicles. The company has an Earnings ESP of 0.00% and a Zacks Rank #4. Surprise prediction here too becomes inconclusive, with the company not having a right combination of ESP and rank.

Sunstone Hotel Investors Inc. is a lodging REIT that has a portfolio of hotels which are mainly in the upper upscale segment. The hotels are usually operated under brands – such as Marriott, Hilton, Fairmont and Hyatt. The company has an Earnings ESP of 2.70%. While this is a major indicator of a likely positive surprise, the chances of beat are however lowered by the company’s Zacks Rank #4.

Parkway Properties Inc. is engaged in the acquisition, ownership, development and management of office properties in higher growth submarkets in the Sunbelt region of the U.S. The company has an Earnings ESP of 6.45% and a Zacks Rank #3. Therefore, it has a high chance of beating estimates this quarter as it has the right combination of rank and ESP, according to our model.