REITs To Look For Q2 Earnings On Aug 9: HCP, LAMR, HPT, LXP

As the current reporting cycle is drawing to a close, a number of real estate investment trusts (REITs) like HCP Inc. (NYSE:HCP) , Lamar Advertising Co. (NASDAQ:LAMR) , Hospitality Properties Trust (NASDAQ:HPT) and Lexington Realty Trust (NYSE:LXP) are set to report their Q2 results on Tuesday, Aug 9.

Per our Earnings Preview report, for the Finance Sector, of which REITs are a part, results are out from 88.1% of the sector’s total market capitalization as of Aug 5, 2016. Total earnings for these Finance sector companies are down 7.1% year over year on 3.2% lower revenues, with 65.9% beating EPS estimates and 53.4% surpassing revenue expectations. Further, total Q2 earnings are projected to be down 5.3% on 0.4% lower revenues for the Finance sector. This will follow 6.9% decrease in the sector’s earnings from the prior quarter.

However, it has been a mixed earnings season so far for the REIT industry. While a consistent low-rate environment has been a boon for them in Q2, economic environment and individual market dynamics played a pivotal role in the performances of the REITs.

As a result, rising supply of new units in New York and San Francisco cast a pall on the performances of the residential REITs like Equity Residential (NYSE:EQR) and UDR Inc. (NYSE:UDR) , while increasing demand for warehouse facilities have helped Prologis, Inc. (NYSE:PLD) to come out with better number for Q2. Also, healthy fundamentals have helped office REITs like SL Green Realty Corp. (NYSE:SLG) and Boston Properties Inc. (NYSE:BXP) to post better-than-expected results this season.

However, not all REITs are equally poised to surpass analyst’s expectations. Moreover, they cater to different asset classes. Therefore, we have relied on the Zacks methodology of combining a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) with a positive Earnings ESP to predict the chances of an earnings 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 a favorable Zacks Rank and Earnings ESP, chances of a positive earnings surprise are as high as 70% for the stocks.

Let’s now check how the above-mentioned companies are expected to perform, when they report their Q2 results on Aug 9.

HCP Inc. is a healthcare REIT with a diversified portfolio of assets including senior housing, post-acute/skilled nursing, life science, medical office and hospital. The company has an Earnings ESP of 0.00% and a Zacks Rank #2. Despite a favorable rank, its 0.00% Earnings ESP makes surprise prediction difficult.

HCP has a diversified, well-balanced portfolio in the healthcare sector. The company is expected to benefit from rising healthcare spending and a growing aging population in the to-be-reported quarter. However, growth might be hindered by cut-throat competition in its markets. Also, increased supply in the broader metropolitan statistical areas (MSAs). (Read: HCP Inc. Q2 Earnings: What's in Store for the Stock?)

Lamar Advertising Co. is one of the largest owners and operators of outdoor advertising structures in the United States. The company also operates the logo sign business in the U.S. and transit advertising displays on bus shelters, bus benches and buses in several markets. The company has an Earnings ESP of 0.00% and a Zacks Rank #3. Despite a favorable rank, its 0.00% Earnings ESP makes surprise prediction difficult.

Hospitality Properties Trust is a hotel REIT that owns a diverse portfolio of hotels and travel centers that are situated in 45 states, Puerto Rico and Canada. The company has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). Note that we caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company or partnership is seeing negative estimate revisions.

Lexington Realty Trust is into ownership of a diversified portfolio of real estate assets that mainly includes equity and debt investments in single-tenant net-leased commercial properties and land across the U.S. The company aims at portfolio expansion through acquisitions as well as build-to-suit deals and sale-leaseback transactions. The company has an Earnings ESP of -3.57% and a Zacks Rank #4.