REITs To Watch For Earnings On Oct 25: BXP, EQR, LPT, UDR

We have entered into one of the busiest weeks of the Q3 earnings season for the real estate investment trust (REIT) industry. Companies like Boston Properties, Inc. (NYSE:BXP) , Equity Residential (NYSE:EQR) , UDR Inc. (NYSE:UDR) and Liberty Property Trust (NYSE:LPT) have lined up their earnings releases on Oct 25.

No doubt, the sentiments have been positive so far, with the top-notch REITs like Prologis, Inc. (NYSE:PLD) and SL Green Realty Corp. (NYSE:SLG) rendering better-than-expected performances. However, despite broadly benefiting from the persistent low-rate environment for their high debt-dependence nature, individual market dynamics of the underlying asset category play a pivotal role in defining the REIT’s performance.

Per an Axiometrics study, the national apartment market has been experiencing moderation over the past few quarters, after posting robust results in 2014 and 2015, thanks to the new supply in the high-rent metros. Yet, the market has been still performing above the long-term average. Also, market fundamentals have remained steady in the mid-range markets.

On the other hand, during Q3, the national vacancy rate in the U.S. office sector remained at the lowest level since 2008, per a report from CBRE Group, Inc. (NYSE:CBG) . Further, the office market was aided by limited new construction and stable demand for space. Space additions by firms are occurring at a modest pace, with the suburbs outperforming the downtown markets. Moreover, per the CBRE Group’s study, the industrial REIT market continued its longest stretch of recovery, with the 26th straight quarter of declining availability.

Therefore, surprises might be in store for the REITs, in the third quarter, despite a challenging environment stemming from the rising supply in some asset categories. Now, let’s take a look at the four REITs scheduled to release their third-quarter results on Oct 25.

Office REIT – Boston Properties – is slated to come up with earnings release after the market closes tomorrow. The company’s assets are mainly concentrated in select high-rent, high barrier-to-entry geographic markets. Further, its strong tenant and industry base, including several bellwethers, ensures steady rental revenue growth in the to-be-reported quarter. However, stiff competition and additional supply in some of its markets pose concerns for the company. The stock is less likely to post a surprise this quarter. (Read more: Boston Properties Q3 Earnings: What's in the Cards?)

In fact, this Zacks Rank #3 (Hold) stock currently has an Earnings ESP – the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate – of 0.00%. Our model does not conclusively predict that the company will record a positive surprise. This is because it lacks the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, this stock has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, as shown in the chart below:

Residential REIT, Equity Residential has been repositioning its portfolio to focus on high-barrier markets and opted for substantial sale out of its portfolio in recent quarters. The company’s same-store revenue growth is anticipated to bear the brunt of an elevated new supply and slowdown in high-paying jobs in San Francisco and New York. (Read more: Will Equity Residential Earnings Disappoint in Q3?)

Moreover, though the assets sale might help the company to focus exclusively on its core, high-density urban markets over the long term, the earnings dilution impact from such a move would be impossible to avoid in the near term.

This Zacks Rank #3 stock also has an Earnings ESP of 0.00% and is less likely to surpass estimates in the third quarter. Moreover, the company has met estimates in two and missed on the other two occasions, over the trailing four quarters. The graph below depicts the surprise history of the company.

Residential REIT, UDR Inc. has a vast experience in the residential real estate market. Despite supply issues cropping up in some of its markets, the company is well poised for growth. Its superior portfolio in targeted U.S. markets and disciplined capital allocation should drive its results in the to-be-reported quarter. (Read more: Is UDR Inc. Poised for a Beat This Earnings Season?)

This Zacks Rank #3 stock has an Earnings ESP of 2.22% and we expect this stock to beat expectations when it reports its third-quarter 2016 results after the closing bell tomorrow.

Notably, over the trailing four quarters, the company has met estimates in three occasions and exceeded expectation in the other. This is depicted in the graph below.

Liberty Property Trust is focused on industrial portfolio expansion amid favorable demand supply dynamics. The company has been making concerted efforts to divest its non-core assets and utilize the proceeds for gaining preferred properties across the U.S.

Recently, the company announced the closure of the sale of 108 properties in five markets, for $969 million. Majority of them were suburban offices and flex non-core assets. In fact, with this sale, its share of total dispositions reached $1.2 billion so far this year. While such moves are a strategic fit for the long term, the near-term dilution effect of sale of assets on earnings is unavoidable.

This Zacks Rank #4 (Sell) stock presently has an Earnings ESP 0.00%. This reduces the chances of any positive surprise in the third quarter.

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

Yet, this stock has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, as shown in the chart below:

However, investors should focus on the companies’ fundamentals, regardless of an earnings beat or miss. So, check later our full write up on earnings releases of these stocks.


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