Zacks Industry Outlook Highlights: CBRE Group, Simon Property Group, Macerich and General Growth Properties
CHICAGO, Feb. 26, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Real Estate Investment Trust (REIT), including CBRE Group, Inc. (NYSE:CBG-Free Report), Simon Property Group Inc. (NYSE:SPG-Free Report), Macerich Company (NYSE:MAC-Free Report) and General Growth Properties, Inc. (NYSE:GGP-Free Report).
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Industry: Real Estate Investment Trust (REIT)
Link: http://www.zacks.com/commentary/31451/reit-industry-review--stock-picks---feb-2014
Within the Zacks Industry classification, REITs are broadly grouped into the Finance sector (one of 16 Zacks sectors) and further sub-divided into four industries at the expanded level: REIT Equity Trust - Retail, REIT Equity Trust - Residential, REIT Equity Trust - Other and REIT Mortgage Trust.
We rank all of the 260 plus industries in the 16 Zacks sectors based on the earnings outlook for the constituent companies in each industry. This ranking is available on the Zacks Industry Rank page.
As a point of reference, the outlook for industries with Zacks Industry Rank #88 and lower (the top one-third of the list) is 'Positive,' between #89 and #176 is 'Neutral', and #177 and higher (the bottom one-third) is 'Negative.'
The Zacks Industry Rank for REIT Equity Trust - Retail is #94, REIT Mortgage Trust is #100, REIT Equity Trust - Residential is #108 and REIT Equity Trust - Other is #168. Analyzing the Zacks Industry Rank for different REIT segments, it is obvious that the outlook for REIT industry as a whole is in the neutral zone.
Earnings Trends
Currently, we are in the last leg of the fourth quarter 2013 earnings season with results from 430 S&P 500 companies already declared. These companies account for 91.3% of the index's total market capitalization.
As a matter of fact, in 2013, the broader Finance sector, of which REITs are part, has marched well to get back its top position in terms of earnings contribution in the index. Among the finance companies that have already reported (94.9% of the S&P 500's Finance sector), the 'earnings beat ratio' (percentage of companies with positive surprises) was 72.0% while the 'revenue beat ratio' was 64.0%.
Total earnings for this sector were up 22.8% year over year and as against a 10.5% growth in the third quarter. On the other hand, total revenue moved south 8.8% year over year verses a decline of 14.6% in the prior quarter.
But consensus earnings expectation for the upcoming quarters remain weak with an anticipation of a decrease in year-over-year earnings of 8.4% in first quarter 2014, 7.6% in the second quarter and 1.0% in the third. But 2014 earnings are expected to increase 6.6% from the prior year.
For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.
Retail REITs
Growing consumer confidence drives the demand for retail goods. Consequently, this is an opportune moment for companies providing real estate support to the retail sector. Amid lower supply of new properties, steadily rising demand is shaping up as the sector's growth driver for years to come.
As per recent analysis by the commercial real estate services firm CBRE Group, Inc. (NYSE:CBG-Free Report), the retail availability rate fell 30 bps to 12.0% for the fourth quarter and moved 70 bps down for 2013, reflecting consistent improvement in net absorption. CBRE's outlook of a further drop in the availability rate for neighborhood and community shopping centers to 10.6% in 2014 is added good news for the sector.
Moreover, with competition intensifying from a growth of e-commerce, product delivery to customers has become a major zone for combat for the mall REITs. As a result, retail REITs such as Simon Property Group Inc. (NYSE:SPG-Free Report), The Macerich Company (NYSE:MAC-Free Report) and General Growth Properties, Inc. (NYSE:GGP-Free Report) are leveraging on their nationwide real estate properties – mall and retail outlets – and using these as distribution centers. They are using their infrastructure with Deliv's solution to offer same-day delivery service to retailers. With the stores already having a presence in the cities and in the vicinity of target customers, delivery of items can be speedy as well.
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