We are in one of the busiest weeks of the current reporting cycle. Investors are busy crunching profit numbers and surprises of companies that have already released their quarterly numbers so far. However, instead of accumulating stocks later, investing in the ones that are yet to report earnings and are poised for a beat can be far more rewarding. This is because an earnings beat essentially serves as a catalyst, boosts investor confidence in a stock and results in further price appreciation.
Nonetheless, the June-end quarter was different compared with the previous quarters in recent times as the coronavirus mayhem has disrupted the economy and the job market. Several industries have been adversely impacted and reported massive losses. However, there have been gainers too, like e-commerce and cloud business, which are gaining from the heightening reliance on technology thanks to the surge in remote working across the globe due to the imposition of social-distancing measures.
REITs invest in all types of properties, from residential, industrial, offices, malls to hospitals, hotels and data centers and several others. And underlying asset categories as well as location of properties play a crucial role in determining their performance. Therefore, not all companies in the sector have suffered a setback during the period under discussion. Hence, delving into the asset fundamentals and markets of each REIT becomes all the more important.
For example the industrial real estate asset category showed resilience in the second quarter amid the coronavirus crisis on low vacancy rates, high-asking rents, positive net absorptions and robust rent collections. There has been a notable increase in e-commerce’s share of total retail sales, spurring demand for warehouse and distribution space. Per a CBRE Group CBRE report, the average asking rents finished the mid-year at $7.96 per square feet, marking a 6.3% increase year on year. In addition, the asset category has a near-record low overall vacancy rate of 4.7%.
Furthermore, the stay-at-home economy amid the pandemic acted as a catalyst for data centers and tower REITs, which play a vital role in providing the critical infrastructures needed for a seamless connection. These REITs too are likely to have witnessed solid demand and leasing activities during the June-end quarter.
Also, given the higher investments in pharmaceutical research and development, critical monetary support from the government and urgent hiring by tenants, lab-office assets are anticipated to have been in high demand during the second quarter. Apart from this, increasing levels of patient traffic and activity have buoyed performance of medical office buildings.
Nonetheless, things are not bright elsewhere, and residential and retail asset categories seem to have been affected. The April-June period, which marks the start of the prime leasing season for the U.S. apartment market, was not favorable this time as the pandemic has impacted the economy, while job cuts in the beginning of the quarter affected leasing activity. Furthermore, the retail real estate market had already been bearing the brunt of declining traffic, store closures and retailer bankruptcies, and now the pandemic has only added to its woes.
The Zacks Methodology
However, picking the right stock could be difficult unless one knows the proper method. To make the task simple, we rely on the Zacks methodology, combining a 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. And research shows that for stocks with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are four REITs that have the right combination of elements to deliver positive surprises this season. Also, the diversification benefits that real estates offer make them prudent investment choices now.
VEREIT, Inc. VER currently carries a Zacks Rank of 2 and has an Earnings ESP of +3.33%. This Phoenix, AZ-based diversified REIT has a decent surprise history, having beaten estimates in all of the preceding four quarters, the average surprise being 3.47%.
VEREIT Inc. owns and manages one of the largest portfolios of single-tenant commercial properties in the United States. It has a diversified portfolio of retail, restaurant, office and industrial real estate assets.
VEREIT Inc. is set to report quarterly numbers on Aug 6.
Healthcare Trust of America, Inc. HTA currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.96% for the quarter under review.
Healthcare Trust of America is the largest dedicated owner and operator of medical office buildings (MOBs) in the United States. Its tenants mainly comprise health systems, universities, physicians, and healthcare service providers, like imaging companies, surgery center operators, and pharmacies. The company has witnessed increasing levels of patient traffic and activity at its buildings, and is likely to have enjoyed steady occupancy levels and leasing activity in its portfolio during the June-end quarter.
Healthcare Trust of America is scheduled to announce second-quarter figures on Aug 6.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Physicians Realty Trust DOC currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.55% for the to-be-reported quarter.
Physicians Realty Trust is engaged in acquisition, selective development, ownership and management of healthcare properties that are leased to physicians, hospitals and healthcare delivery systems.
Physicians Realty Trust is set to release earnings results on Aug 6.
National Storage Affiliates Trust NSA holds a Zacks Rank #3 and has an Earnings ESP of +0.44%, at present. The company surpassed estimates in three of the trailing four quarters and met in the other, the average surprise being 1.92%.
National Storage Affiliates is focused on ownership, operation and acquisition of high quality regional self-storage facilities situated within high growth markets. The self-storage industry has continued to gain from favorable demographic changes. Specifically, migration and downsizing trend, and increase in the number of people renting homes have triggered the needs of consumers to rent spaces at storage facilities to park their possessions.
National Storage Affiliates will announce April-June quarterly figures on Aug 6.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Physicians Realty Trust (DOC) : Free Stock Analysis Report
Healthcare Trust of America, Inc. (HTA) : Free Stock Analysis Report
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VEREIT Inc. (VER) : Free Stock Analysis Report
CBRE Group, Inc. (CBRE) : Free Stock Analysis Report
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