Residential REITs' Q2 Earnings On Aug 1: EDR, PPS, APTS

We are in the heart of the second-quarter earnings season and this week has been quite an eventful one for the residential REIT category in the real estate investment trust (REIT) space

Already, a number of big-shot residential REITs – including Avalonbay Communities Inc. (AVB), Equity Residential (NYSE:EQR) and Essex Property Trust Inc. (NYSE:ESS) – have reported their results. Up next are EdR Inc. (NYSE:EDR) , Post Properties Inc. (NYSE:PPS) and Preferred Apartment Communities, Inc. (NYSE:APTS) that are scheduled to come up with their earnings numbers on Monday, Aug 1.

Results have been mixed so far. While big shots like Avalonbay and Equity Residential missed estimates, Essex Property and Apartment Investment and Management Company (Aimco) managed to stay afloat. Raised deliveries in New York and San Francisco markets have been a dominant theme this quarter. This remains a concern as high supply of new units generally trims landlords’ capability to demand more rents and thus results in lower absorption.

In fact, per the early end-of-quarter apartment numbers from Axiometrics, delivery of new supply in a number of markets has moderated the annual effective rent growth that came in at 3.7% in Q2, reflecting a fall from the healthy 5.1% a year ago.

However, not all residential REITs are equally projected to miss or beat this season. Therefore, 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, to predict the chances of a beat this quarter.

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.

Let’s now take a look into how these three residential REITs are expected to perform, when they report their second-quarter 2016 results on Monday.

EdR – previously known as Education Realty Trust – is based in Memphis, TN, and owns, manages, and develops student housing communities located near university campuses throughout the United States. The company has an Earnings ESP of 0.00% and Zacks Rank #2. Though a favorable Zacks Rank increases the predictive power of ESP, the stock’s ESP of 0.00% makes surprise prediction difficult.

Post Properties is one of the largest developers and operators of upscale, multifamily apartment communities, focused on developing and managing branded high-density urban and resort-style garden apartments. The company is headquartered in Atlanta, GA, and has operations in 10 markets across the country. The stock has an Earnings ESP of 0.00% and Zacks Rank #2. Despite a favorable Zacks Rank, a 0.00% ESP lowers the chances of a beat this quarter.

Preferred Apartment Communities is an Atlanta-based REIT that acquires and operates multifamily properties primarily in select targeted markets throughout the U.S. The company has an Earnings ESP of 0.00% and Zacks Rank #3. Our proven model does not conclusively show that the stock is likely to beat on earnings this quarter since it lacks the right combination of the two key ingredients – Earnings ESP and Zacks Rank.

Stay tuned! Check back on our full write-up on earnings releases of these stocks.

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 EPS numbers presented in this write up represent FFO per share.