Q2 Earnings Season: Spotlight on Promising REITs
As the second quarter earnings season unfolds, initial reports can greatly influence investor perceptions. Instead of focusing solely on companies that have already announced results, it might be more beneficial to turn attention toward those that are set to exceed expectations, as a positive earnings surprise can boost investor confidence and elevate stock prices.
REITs: Resilience Amid Challenges
Real estate investment trusts (REITs) play a pivotal role in both the physical and digital economy, exhibiting resilience even in challenging conditions. By digging deeper into the fundamental strengths of this sector, investors can reveal opportunities for stability and long-term growth, even in uncertain market climates.
Current State of the Industry
According to a recent report, the U.S. industrial real estate market showed impressive resilience in Q2, with net absorption reaching 29.6 million square feet—similar to previous quarters but below historical norms. Despite the gradual cooling in growth rates, the absorption rate indicates consistent demand amid economic fluctuations and heightened tariffs, although regional variations were noticeable.
The vacancy rate has increased, rising by 20 basis points to 7.1%, marking a notable shift. However, it stays close to the 15-year pre-pandemic average, as industrial rental growth has decelerated to 2.6%, the slowest growth rate since early 2020. Strong leasing activity persisted, totaling nearly 309 million square feet in the first half of the year, directed by substantial deals and ongoing demand from third-party logistics (3PL) providers.
For retail-focused REITs, recent findings have revealed that, while demand remains strong for key retail locations, the overall availability rate increased to 4.9% in Q2. This rise is attributed to rising bankruptcies and substantial downsizing among retailers. The net absorption recorded was negative for the second consecutive quarter, totaling 5 million square feet in Q2.
In the construction sector, completions fell slightly to 4.1 million square feet in Q2, dropping from 4.4 million in Q1 and far below the ten-year quarterly average of 11.9 million. Developers are adopting a cautious stance, favoring pre-leased and custom build developments over speculative construction. Asking rents increased modestly to $24.79 per square foot, reflecting the need for landlords in weaker markets to temper rent hikes in the face of soft demand and tenant price sensitivity.
Identifying Opportunities with the Zacks Method
Navigating stock selection can be complex, especially in today’s market. Utilizing the Zacks approach simplifies this process. This method combines a Zacks Rank of 1 (Strong Buy), 2 (Buy), or 3 (Hold) with a positive Earnings Surprise Prediction (ESP).
Research indicates that stocks exhibiting this specific combination have a 70% likelihood of delivering a positive earnings surprise. Here we highlight three REITs that appear set to achieve notable outcomes this earnings season.
Realty Income Corporation
Realty Income holds a Zacks Rank of 3, with an ESP of +0.30% for the upcoming quarter. Historically, the company has demonstrated a mixed performance in terms of adjusted funds from operations (AFFO) per share, having exceeded the Zacks Consensus Estimate once, meeting expectations twice, and falling short on another occasion.
Expected to report stable Q2 results, Realty Income benefits from a high-quality, diversified portfolio and a solid tenant base, boasting a 98.5% occupancy rate as of March 2025. Their focus on non-discretionary, low-price-point sectors could sustain stable earnings. The REIT is scheduled to announce its earnings on August 6, after market hours, with projected revenues of $1.40 billion, indicating a 4.21% year-over-year increase.
Americold Realty Trust
With a Zacks Rank of 3 and an ESP of +0.74%, Americold Realty Trust has shown promise over the past four quarters, exceeding estimates twice. This company acts as a vital link in the supply chain by providing temperature-controlled warehousing. Given the ongoing demand for cold storage, Americold is well-positioned to meet these needs, especially amid the rise of e-commerce. Results are expected to be released on August 7, with quarterly revenue estimates at approximately $647.54 million.
Plymouth Industrial REIT
Plymouth Industrial holds a Zacks Rank of 2, with an ESP of +2.33%. The company’s strategy to redeploy capital into productive investments has shown effectiveness and maintained strong leasing activity. Plymouth is set to announce its quarterly results on August 6. Revenue estimates are projected at $46.71 million, with anticipated FFO per share of 43 cents.
Conclusion
As the earnings season progresses, investors should keep a close eye on REITs like Realty Income, Americold Realty Trust, and Plymouth Industrial. Each of these companies showcases unique strengths and opportunities, potentially leading to favorable outcomes in a fluctuating market.
