3 REITs to Watch for Potential Upside This Earnings Season

As the Q2 earnings season unfolds, the REIT sector presents a mixed picture: industrial real estate shows resilience with steady absorption despite increasing vacancies and slowing rent growth, while retail REITs face rising availability and negative absorption, particularly outside prime locations. Amidst these varied market conditions, Realty Income, Americold Realty Trust, and Plymouth Industrial REIT are highlighted as potential outperformers, driven by their diversified portfolios, essential services, and strategic capital deployment, respectively, suggesting opportunities for positive earnings surprises.

Analysis

The REIT sector presents a bifurcated outlook heading into second-quarter earnings, with notable divergence between industrial and retail segments. The U.S. industrial real estate market, while resilient, is showing signs of cooling; net absorption remains positive at 29.6 million square feet but is below historical averages, and vacancy has ticked up to 7.1%. More critically, asking rent growth has slowed to 2.6%, its weakest pace since early 2020. Conversely, the retail real estate sector is facing more significant headwinds, marked by a second consecutive quarter of negative net absorption (-5 million square feet) and a rising availability rate of 4.9% due to retailer downsizing. Against this backdrop, specific REITs are identified as potential outperformers based on quantitative factors. Plymouth Industrial REIT (PLYM) shows the strongest signal with a Zacks #2 (Buy) rating and a +2.33% Earnings ESP. Americold Realty Trust (COLD) is positioned as a defensive play in the specialized cold storage niche with a positive ESP of +0.74%. Realty Income (O) is expected to deliver stable results from its high-occupancy portfolio, though its projected AFFO per share of $1.06 indicates no year-over-year growth, making its performance a key test of its diversification strategy.

Key Decisions for Investors

• Investors should exercise selectivity within the REIT sector, recognizing the clear divergence between the resilient-but-slowing industrial market and the challenged retail segment facing negative net absorption.
• Based on the provided quantitative signals, consider focusing on Plymouth Industrial REIT (PLYM) for a potential positive earnings surprise, given its favorable Zacks #2 rank combined with a high Earnings ESP of +2.33%.
• Defensive, niche-focused REITs like Americold Realty Trust (COLD) may offer a buffer against market uncertainty, as its temperature-controlled warehouse portfolio benefits from durable e-commerce trends.
• For Realty Income (O), the critical data point to monitor in its upcoming report will be the AFFO per share, as meeting the flat year-over-year forecast of $1.06 would validate its diversification strategy against sector-wide pressures.