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EQR and IRM Q3 Earnings: Here are the Key Predictions
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We are in the heart of the Q3 reporting cycle and the real estate investment trust (REIT) space is buzzing with activity. In fact, there is a deluge of Q3 earnings releases line up for this week, of which Equity Residential (EQR - Free Report) and Iron Mountain Incorporated (IRM - Free Report) will release quarterly numbers on Oct 24.
No doubt, the Minutes from the September Federal Open Market Committee meeting, which clearly signal a December rate hike, have kept investors in the REIT space worried to some extent. This is because REITs depend on debt for their business, and pay high and consistent dividend. Thus, a higher rate affects the present value of future cash flows.
Nevertheless, with improvement in the macroeconomic scenario, at a steady yet sluggish pace, demand for a number of asset categories displayed strength in third-quarter 2017. Though supply has been increasing, the pace has been modest in many of the asset categories.
According to a study by the real estate technology and analytics firm — RealPage, Inc. —the U.S. apartment market recorded stable rent growth, while occupancy remained healthy in the third quarter. However, these growth levels have moderated from the earlier years. For new leases, effective rents inched up 0.9% during the quarter and 2.6% annually. Further, apartment occupancy came in at 95.5% for the third quarter across the nation’s top 100 metros.
Going by numbers, per a study by the commercial real estate services’ firm, CBRE Group Inc. , the U.S. office vacancy rate declined to 12.9% in the third quarter amid growth in office-using jobs. In most of the U.S. office markets, vacancy declined, taking the national office vacancy rate close to its post-recession low.
Additionally, data center REITs are experiencing a boom with the growing popularity of cloud computing, Internet of Things and big data as well as the use of third-party IT infrastructure by several companies. In fact, demand has been outpacing supply in top-tier data center markets. Despite enjoying high occupancy, these markets are absorbing new construction at a faster pace.
Per the latest Earnings Preview, overall earnings for the Finance sector, of which REITs are part, are expected to be down 1.5% year over year on 1.1% higher revenues. This represents the Q3 earnings and revenue expectations for the sector as a whole — i.e. after combining the reported actual results with the still-to-come estimates.
Now, let’s have a close look at the factors that will impact the above-mentioned two REITs’ third-quarter results.
For Chicago, IL-based residential real estate investment trust (REIT) — Equity Residential —things do not appear to be much favorable. In fact, there is an increasing apartment supply in a number of the company’s markets. This elevated supply is likely to put pressure on rental rates and adversely affect revenue growth in the to-be-reported quarter. In addition to this, there is high concession activity amid higher supply, which remains a concern.
Furthermore, the company has made strategic efforts toward repositioning the portfolio from low barrier-to-entry/non-core markets to high barrier-to-entry/core markets, and opted for substantial sale out of its portfolio in recent years.
Though the assets sale might enable the company to focus exclusively on its core, high-density urban markets over the long term, the earnings-dilution impact from such a move cannot be bypassed in the near term. These issues are expected to affect the company’s net operating income in the quarter to be reported.
Amid these, the Zacks Consensus Estimate for revenues is currently pegged at $619.6 million, marking estimated growth of 2.2% year over year.
For third-quarter 2017, Equity Residential projects normalized funds from operations (FFO) per share in the range of 77-81 cents. The Zacks Consensus Estimate for the same is currently pegged at 79 cents.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Boston, MA-based specialty REIT Iron Mountain deals in storage and information management services. The company’s diversified revenue base remains a positive. Moreover, a solid product portfolio and increasing market share are growth catalysts. The company has an aggressive acquisition strategy to supplement organic growth in storage revenues. Also, it has been investing aggressively in order to set up its data-center business.
Still, Iron Mountain’s Service revenues remain modest due to declining activity rates as stored records are becoming less active. Further, the storage and information management services industry remains a highly fragmented industry with intensifying competition. In addition, the company’s highly-leveraged balance sheet remains a concern.
Amid these, the Zacks Consensus Estimate for revenues is currently pegged at $962.4 million, denoting expected growth of nearly 2.1% year over year. The Zacks Consensus Estimate for FFO per share is pegged at 56 cents.
At present, Iron Mountain has a Zacks Rank #3 (Hold) and an Earnings ESP of -1.35%. Though the Zacks Rank is favorable, the negative ESP lowers chances of an earnings beat.
Note: All earnings per share numbers presented in this report represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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EQR and IRM Q3 Earnings: Here are the Key Predictions
We are in the heart of the Q3 reporting cycle and the real estate investment trust (REIT) space is buzzing with activity. In fact, there is a deluge of Q3 earnings releases line up for this week, of which Equity Residential (EQR - Free Report) and Iron Mountain Incorporated (IRM - Free Report) will release quarterly numbers on Oct 24.
No doubt, the Minutes from the September Federal Open Market Committee meeting, which clearly signal a December rate hike, have kept investors in the REIT space worried to some extent. This is because REITs depend on debt for their business, and pay high and consistent dividend. Thus, a higher rate affects the present value of future cash flows.
Nevertheless, with improvement in the macroeconomic scenario, at a steady yet sluggish pace, demand for a number of asset categories displayed strength in third-quarter 2017. Though supply has been increasing, the pace has been modest in many of the asset categories.
According to a study by the real estate technology and analytics firm — RealPage, Inc. —the U.S. apartment market recorded stable rent growth, while occupancy remained healthy in the third quarter. However, these growth levels have moderated from the earlier years. For new leases, effective rents inched up 0.9% during the quarter and 2.6% annually. Further, apartment occupancy came in at 95.5% for the third quarter across the nation’s top 100 metros.
Going by numbers, per a study by the commercial real estate services’ firm, CBRE Group Inc. , the U.S. office vacancy rate declined to 12.9% in the third quarter amid growth in office-using jobs. In most of the U.S. office markets, vacancy declined, taking the national office vacancy rate close to its post-recession low.
Additionally, data center REITs are experiencing a boom with the growing popularity of cloud computing, Internet of Things and big data as well as the use of third-party IT infrastructure by several companies. In fact, demand has been outpacing supply in top-tier data center markets. Despite enjoying high occupancy, these markets are absorbing new construction at a faster pace.
Per the latest Earnings Preview, overall earnings for the Finance sector, of which REITs are part, are expected to be down 1.5% year over year on 1.1% higher revenues. This represents the Q3 earnings and revenue expectations for the sector as a whole — i.e. after combining the reported actual results with the still-to-come estimates.
Now, let’s have a close look at the factors that will impact the above-mentioned two REITs’ third-quarter results.
For Chicago, IL-based residential real estate investment trust (REIT) — Equity Residential —things do not appear to be much favorable. In fact, there is an increasing apartment supply in a number of the company’s markets. This elevated supply is likely to put pressure on rental rates and adversely affect revenue growth in the to-be-reported quarter. In addition to this, there is high concession activity amid higher supply, which remains a concern.
Furthermore, the company has made strategic efforts toward repositioning the portfolio from low barrier-to-entry/non-core markets to high barrier-to-entry/core markets, and opted for substantial sale out of its portfolio in recent years.
Though the assets sale might enable the company to focus exclusively on its core, high-density urban markets over the long term, the earnings-dilution impact from such a move cannot be bypassed in the near term. These issues are expected to affect the company’s net operating income in the quarter to be reported.
Amid these, the Zacks Consensus Estimate for revenues is currently pegged at $619.6 million, marking estimated growth of 2.2% year over year.
For third-quarter 2017, Equity Residential projects normalized funds from operations (FFO) per share in the range of 77-81 cents. The Zacks Consensus Estimate for the same is currently pegged at 79 cents.
Currently, the Earnings ESP for Equity Residential is -1.04%. Also, Equity Residential’s Zacks Rank #4 (Sell) further decreases the predictive power of ESP. (Read more: Will High Supply Impact Equity Residential Q3 Results?)
Equity Residential Price and EPS Surprise
Equity Residential Price and EPS Surprise | Equity Residential Quote
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Boston, MA-based specialty REIT Iron Mountain deals in storage and information management services. The company’s diversified revenue base remains a positive. Moreover, a solid product portfolio and increasing market share are growth catalysts. The company has an aggressive acquisition strategy to supplement organic growth in storage revenues. Also, it has been investing aggressively in order to set up its data-center business.
Still, Iron Mountain’s Service revenues remain modest due to declining activity rates as stored records are becoming less active. Further, the storage and information management services industry remains a highly fragmented industry with intensifying competition. In addition, the company’s highly-leveraged balance sheet remains a concern.
Amid these, the Zacks Consensus Estimate for revenues is currently pegged at $962.4 million, denoting expected growth of nearly 2.1% year over year. The Zacks Consensus Estimate for FFO per share is pegged at 56 cents.
At present, Iron Mountain has a Zacks Rank #3 (Hold) and an Earnings ESP of -1.35%. Though the Zacks Rank is favorable, the negative ESP lowers chances of an earnings beat.
Iron Mountain Incorporated Price and EPS Surprise
Iron Mountain Incorporated Price and EPS Surprise | Iron Mountain Incorporated Quote
You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Note: All earnings per share numbers presented in this report represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
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