The second-quarter reporting cycle is underway, and investors can be lured by the profits of companies that have already released their quarterly figures. However, rather than adding the stock later to your portfolio, accumulating the ones poised to beat estimates can generate higher gains. This is because an earnings beat usually serves as a catalyst, raising investors’ confidence in the stock and resulting in price appreciation. 

This is likely to be reflected in the earnings releases of Simon Property Group, Inc. (SPG Quick QuoteSPG - Free Report) , Apple Hospitality REIT, Inc. (APLE Quick QuoteAPLE - Free Report) and Armada Hoffler Properties, Inc. (AHH Quick QuoteAHH - Free Report) .

Obviously, the rate-sensitive REITs are in the spotlight now because the Federal Reserve officials have kept the rate steady this time following the FOMC meeting but admitted progress on inflation. Further, Fed Chair Jerome Powell indicated that a September rate cut is possible if data becomes favorable.

Falling rates sound good for REITs because of their debt-dependence nature. Also, REITs are often viewed as bond substitutes due to their consistent and high dividend payouts. So, a rate cut in the near future drives investors’ sentiment toward these stocks.

Moreover, focusing on REITs will be a smart move because with the industry offering the real estate structure for several economic activities, be it real or virtual, there are pockets of strength, even in any challenging environment.

For example, for REITs dealing with residential real estate, we note that, per RealPage data, the U.S. apartment market witnessed a surge in demand in the second quarter despite supply continuing to grab headlines. This is evidenced by high absorption rates. With the narrow gap between demand and supply, national occupancy and rent growth rates have stabilized.

In the case of retail real estate, we note that per a Cushman & Wakefield (CWK Quick QuoteCWK - Free Report) report, the gains in real income and employment have continued to support consumer spending, although the rate of growth has decelerated. In the second quarter, the national retail vacancy rate remained unchanged at 5.3% and marked the lowest level experienced in the last two decades. Net absorption turned positive in the second quarter following a contraction in the first quarter. The report also pointed out that the retail market has been historically tight, and this will continue into 2025.

For office REITs, we note that per a report from CBRE Group (CBRE Quick QuoteCBRE - Free Report) , the signs of office market revival have emerged, with net absorption totaling 2.4 million square feet in the second quarter, marking the first quarter of positive demand since the third quarter of 2022. For the largest U.S. office markets, leasing activity improved from the year-ago period.

For hotel properties, healthy leisure demand and improvement in group travel demand and business transient demand are expected to have aided occupancy and revenue per available room (RevPAR) growth. Moreover, mixed-use projects are likely to have enjoyed decent demand as these properties are a preferred destination for today's consumers, tenants, office workers and corporate leaders.

The Zacks Methodology

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 #1 (Strong Buy), 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. Research shows that for stocks with this combination of the Zacks Rank and ESP, chances of a positive earnings surprise are as high as 70%.

Here are three REITs that have the right combination of elements to deliver positive surprises this season. 

Simon Property Group currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.44% for the quarter under review. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed on the other, the average beat being 10.99%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Simon Property Group, Inc. Price and EPS Surprise

Simon Property Group, Inc. price-eps-surprise | Simon Property Group, Inc. Quote

Simon Property is expected to have benefited from its collection of high-quality assets, both domestically and abroad, amid a healthy demand for retail real estate. As consumers increasingly favored in-person shopping experiences after the pandemic lull, it is likely that the demand for SPG's properties remained healthy during the second quarter.

The implementation of an omnichannel approach and successful partnerships with top-tier retailers are expected to yield significant returns for Simon Property. The exploration of mixed-use development, a concept that has garnered widespread popularity in recent years, is likely to allow SPG to seize growth prospects in locations where individuals desire to reside, work and enjoy recreational activities. Also, the retail REIT behemoth is expected to continue enjoying balance sheet strength. 

Simon Property Group is scheduled to release earnings on Aug 5 after market close.

The Zacks Consensus Estimate of $1.43 billion for quarterly revenues suggests a 4.4% increase year over year. The consensus estimate for the quarterly funds from operations (FFO) per share is pegged at $2.92, which indicates 1.4% year-over-year growth.

Apple Hospitality REIT carries a Zacks Rank of 2 and has an Earnings ESP of +12.21% for the to-be-reported quarter at present. Over the trailing four quarters, this hotel REIT met the Zacks Consensus Estimate on three occasions and missed on the other. You can see the complete list of today’s Zacks #1 Rank stocks here.

Apple Hospitality REIT, Inc. Price and EPS Surprise

Apple Hospitality REIT, Inc. price-eps-surprise | Apple Hospitality REIT, Inc. Quote

Apple Hospitality, invested in Marriott, Hilton and Hyatt branded hotels with wide consumer appeal, which gain from strong reservation systems and loyalty programs, is poised to benefit from the continued strength in leisure demand, additional recovery in corporate demand and limited near-term supply growth.

Apple Hospitality REIT is set to release earnings results on Aug 5 after market close.

Currently, the Zacks Consensus Estimate for the company’s quarterly revenues stands at $388.8 million, which indicates a 7.52% increase year over year. The Zacks Consensus Estimate for the quarterly FFO per share is currently pegged at 44 cents.

Armada Hoffler Properties holds a Zacks Rank #3 and has an Earnings ESP of +0.65% at present. Over the trailing four quarters, AHH surpassed estimates on two occasions for as many misses, the average surprise being 0.86%.

Armada Hoffler Properties, Inc. Price and EPS Surprise

Armada Hoffler Properties, Inc. price-eps-surprise | Armada Hoffler Properties, Inc. Quote

Armada Hoffler Properties is engaged in developing, building, acquiring and managing high-quality office, retail and multifamily properties located mainly in the Mid-Atlantic and Southeastern United States. Apart from developing and building properties for its account, AHH offers general construction and development services to third-party clients. In the second quarter, Armada Hoffler Properties is expected to have benefited from its diversified portfolio.

Armada Hoffler Properties is scheduled to report its quarterly figures on Aug 7 after market close.

The Zacks Consensus Estimate for quarterly revenues stands at $61.89 million, which calls for a 3.2% year-over-year increase. The consensus mark for the second-quarter FFO per share is pegged at 31 cents.

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.