REITs To Watch For Earnings Early Next Week: AVB, AGNC & More

The Q3 earnings season for real estate investment trust (REIT) stocks has already commenced and Monday will mark the beginning of one of the busiest weeks of the season.

Student REIT, American Campus Communities, Inc. ACC, residential REIT, Avalonbay Communities, Inc. AVB, retail REITs, Agree Realty Corp. ADC and Brixmor Property Group, Inc. BRX as well as mortgage REIT, AGNC Investment Corp. AGNC are slated to report their earnings on Oct 24, 2016.

Of late, rate hike issues have been flaring up volatility in returns of the REIT stocks. However, the industry has managed to record decent performances in the first two quarters of 2016. Moreover, the Fed’s decision to keep the rate hike on hold during the third quarter is expected to have benefited the debt-dependent REITs. Nonetheless, individual market dynamics of the underlying asset category play a pivotal role in defining the REITs’ performance since the companies cater to an entirely different class of asset.

Hence, it is imperative to examine the fundamentals of the asset categories to predict the REITs’ performances in the to-be-reported quarter.

Industry Fundamentals

According to 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. However, the market is still performing above the long-term average. Also, market fundamentals are still steady in the mid-range markets.

Moreover, per another recent Axiometrics study, the student housing market has recorded solid rent growth in the fall 2016 leasing session. However, rising supply has been softening a number of select markets and leading to a slowdown in leasing velocity.

On the other side, retail availability rate has tightened in many of the U.S. markets in the third quarter, according to a CBRE Group Inc. (CBGstudy. Amid limited supply, demand for retail spaces have continued to rise, with retailers combining online and bricks-and-mortar operations and retail landlords transforming their boring shopping hubs into entertainment zones.

This is because even though online retailing has gathered momentum, customers still prefer spending time in retail centers for shopping, together with dining and entertaining activities. Also, mortgage REITs’ concerted measures to reposition portfolios for hedging interest rate uncertainty is likely to support their bottom line.

Performance Expectations

Therefore, surprises might be in store for REITs this earnings season, despite challenging environments stemming from the rising supply in some asset categories. Let’s take a look at the five REITs scheduled to release their third-quarter results on Oct 24.

Residential REIT – Avalonbay – is slated to release its earnings report after the closing bell on Monday. Amid favorable demographics and healthy demand along its markets, AvalonBay is well poised to grow, given its solid portfolio of high quality assets in premium locations. The company also has a robust balance sheet. However, completion of a number of projects in its markets, leading to higher supply, is likely to result in moderation of rent growth. (Read more: AvalonBay Likely to Beat Q3 Earnings: Stock to Gain?)

The Zacks #3 Rank (Hold) stock currently has an Earnings ESP – the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate – of 0.00%. Though a beat was predicted earlier, presently our model does not conclusively forecast 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 stocks here.

Notably, this stock surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed on the other two occasions, as shown in the chart below:

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