Retail REITs Queued For Earnings On Nov 2: EQIX, FRT & More

We are into another busy week of the current reporting cycle and see a deluge of Q3 earnings releases from the retail real investment trust (REIT) industry. Among them are Equinix, Inc. (NASDAQ:EQIX) , Federal Realty Investment Trust (NYSE:FRT) , Urban Edge Properties (NYSE:UE) and Pennsylvania Real Estate Investment Trust (NYSE:PEI) , slated to report their quarterly numbers on Nov 2.

So far, bellwethers in the retail REIT space, like Simon Property Group, Inc. (NYSE:SPG) and Kimco Realty Corporation (NYSE:KIM) , have already announced their results last week. Simon Property reported a positive surprise of 0.75%, benefiting from growth in operating income and transformative redevelopments. On the other hand, Kimco’s better-than-expected results in the third quarter included U.S. same-property net operating income (NOI) growth of 3.3% year-over-year.

Notably, a rapid shift has occurred in recent years in customers’ shopping preferences and patterns, with online purchases growing by leaps and bounds. While this has helped the online retailers, mall traffic has started suffering. These have led to retailers reconsidering their footprint and eventually opt for store closures.

However, amid this, supply of new space has been limited. Also, meantime, retailers started combining online and bricks-and-mortar operations and retail landlords transforming their boring shopping hubs into entertainment zones. Therefore, even though online retailing has gathered momentum, customers still prefer spending time in retail centers not only for shopping, but also for dining and entertaining activities.

In fact, retail availability rate has tightened in many of the U.S. markets in the third quarter, according to a CBRE Group (NYSE:CBG) study. Nationally, average availability came in at 10.4% in the quarter under review, denoting a contraction of 20 bps sequentially and 50 bps from a year ago.

However, not every retail REIT is equally poised to beat earnings this season. Hence, we relied on the Zacks methodology for predicting a beat this quarter, 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 much high for the stocks.

Let’s take a look at what’s in store for these retail REITs which are slated to report their third-quarter earnings on Nov 2.

Equinix designs, builds and operates neutral Internet Business Exchange centers, where Internet businesses place their equipment and their network facilities in order to interconnect with each other. The neutral IBX centers provide content providers, application service providers and e- commerce companies, with the ability to directly interconnect with a competitive choice of bandwidth providers, Internet service providers and site and performance management companies.

Though the stock has a favorable Zacks Rank #1, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the trailing four quarters, the stock has exceeded estimates in one quarter and lagged in the other three. This is depicted in the graph below.

EQUINIX INC Price and EPS Surprise

EQUINIX INC Price and EPS Surprise | EQUINIX INC Quote

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Federal Realty’s portfolio of premium retail assets – mainly situated in the major coastal markets from Washington, D.C. to Boston and San Francisco and Los Angeles – along with a diverse tenant base, positions it well for decent growth.

However, in the third quarter, the company is anticipated to have experienced anchor rollover drag. Same store metrics, including occupancy levels, are likely to experience deceleration for the Sports Authority bankruptcy and anchor rollover timing, while the company is also projected to have incurred incremental expense for debt. (Read more: Will Federal Realty Q3 Earnings Disappoint Investors?)

With an Earnings ESP of 1.41% and a Zacks Rank #4 (Sell); the stock is not poised for a beat this quarter as it lacks the right combination of positive Earnings ESP and favorable Zacks Rank as given above.

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.

Over the trailing four quarters, this stock has beat estimates in three quarters and met in one, with an average positive surprise of 0.55%. This is shown in the chart below.

FED RLTY INV Price and EPS Surprise

FED RLTY INV Price and EPS Surprise | FED RLTY INV Quote

Urban Edge acquires, develops, owns, manages and improves shopping centers in and on the edge of urban communities. Though it has a favorable Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult. The company came out with an in-line result in the prior quarter and has an average earnings beat of 3.57%. This is depicted in the graph below.

URBAN EDGE PROP Price and EPS Surprise

URBAN EDGE PROP Price and EPS Surprise | URBAN EDGE PROP Quote

Pennsylvania Real Estate Investment Trust is engaged into owning and managing quality properties in compelling markets. The company has an Earnings ESP of -2.27% and a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, a negative ESP itself lowers the chances of a beat this quarter.

Nevertheless, this stock has posted a positive average surprise of 2.72% over the trailing four quarters, having beaten the Zacks Consensus Estimate in three occasions and posting in-line result in the other, as demonstrated in the chart below.

PENN RE INV TR Price and EPS Surprise

PENN RE INV TR Price and EPS Surprise | PENN RE INV TR Quote

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