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REITs to Watch for Q2 Earnings on Aug 2: WPC, CHSP & BFS

After hiking interest rates on an accelerated pace till 2018, the Fed has put rate hikes on hold this year. In fact, on Jul 31, the central bank announced its first rate cut since December 2008, lowering the target range for overnight lending rate by 25 basis points (bps). With this, the interest-rate range now stands at 2-2.25%.

REITs, major beneficiaries of a declining rate environment due to their interest-rate sensitivity, are expected to display improvement, given strengths in the underlying asset categories in which these companies invest.

In fact, going by a report by the Boulder Group, cap rates for the U.S. single-tenant net-lease sector declined across all three major sectors — retail, office and industrial — during the June-end quarter. Specifically, following five consecutive quarters of upward movement, the retail sector witnessed a decline of 4 bps to 6.23% in its cap rates. Further, cap rates for office and industrial sectors contracted 3 and 1 bps, respectively.

Change in the Fed’s monetary policy stance resulted in the downward movement in cap rates during the quarter. Further, as many believe this is the last stage of the current real estate cycle, companies are putting greater emphasis on tenant credit quality and lease length to withstand any uncertainty in the market.

This earnings season also seems to be lackluster for hotel REITs as the sector witnessed its slowest RevPAR growth rate since 2010, per a report by CBRE Group CBRE. In fact, national hotel demand growth rate was 1.9% for the April-June quarter, shrinking 0.5% as compared with the prior quarter. Furthermore, supply growth remained at 2%, while occupancy edged down 0.1% year over year. These factors limited RevPAR growth by 1.1%, year on year.

The recent data from Reis shows that the vacancy rate of neighborhood and community shopping center contracted 10 bps sequentially to 10.1% in the second quarter, denoting its first decline since the first quarter of 2016. The Regional Mall vacancy rate was flat in the second quarter at 9.3%. Store closures continue to affect Regional Mall vacancy. Nonetheless, national average asking rent and effective rent, which nets out landlord concessions, both, inched up 0.4% sequentially and 1.7% from the year-ago quarter.

Let’s take a sneak peek into how the following REITs are poised prior to their second-quarter earnings release on Aug 2.

W. P. Carey Inc. WPC is set to release its quarterly numbers before the market opens.The REIT is engaged in providing long-term sale-leaseback and build-to-suit financing for companies. It focuses on investing in high-quality single-tenant industrial, warehouse, offices and retail properties, which it leases back to creditworthy tenants on a long-term basis, with built-in rent escalators. During the quarter, the company made concerted efforts to fortify its position in the market, announcing industrial investments worth $53 million. 

However, amid competitive marketplace for net lease properties and downward pressure on cap rates during the quarter, the company’s performance is expected to reflect year-over-year (y/y) decline in funds from operations (FFO) per share. Nonetheless, the consensus estimate for revenues of $303.2 million suggests a 74.4% surge.

W. P. Carey does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat. The company’s Earnings ESP is +1.07%. However, a Zacks Rank of 4 (Sell) decreases the predictive power of ESP.

(You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.)

W.P. Carey Inc. Price and EPS Surprise

Chesapeake Lodging Trust CHSP is a self-advised hotel investment company focused on investments in upper upscale hotels in business, airport, convention markets, and select-service hotels in urban settings or locations in the United States.

The Zacks Consensus Estimate for the company’s second-quarter FFO per share of 74 cents calls for y/y growth of 2.8% on 0.7% revenue growth.

However, with a Zacks Rank of 3 and Earnings ESP of -1.65%, the chances of this REIT beating the Zacks Consensus Estimate in the to-be-reported quarter are low.

Chesapeake Lodging Trust Price and EPS Surprise

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Saul Centers BFS is a self-managed, self-administered REIT headquartered in Bethesda, MD, which operates and manages a real estate portfolio of community and neighborhood shopping centers as well as mixed-use properties.

Over the preceding four quarters, the company has surpassed the Zacks Consensus Estimate on two occasions for as many misses, the average positive surprise being 0.94%.

For the June-end quarter, revenues of the company are projected at $58.4 million, indicating y/y growth of 3.9%. This is likely to support second-quarter FFO per share growth. In fact, the Zacks Consensus Estimate for the same is pinned at 81 cents, indicating 2.5% y/y growth.

With a Zacks Rank of 3 and an Earnings ESP of 0.00%, the odds of this REIT beating the Zacks Consensus Estimate in the quarter are low.

Saul Centers, Inc. Price and EPS Surprise

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Saul Centers, Inc. (BFS): Free Stock Analysis Report
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