3 REITs to Watch for Potential Upside This Earnings Season

The article identifies Realty Income (O), Americold (COLD), and Plymouth Industrial (PLYM) as REITs poised for positive earnings surprises in the upcoming second-quarter reporting season, based on a Zacks methodology combining favorable rank and positive Earnings ESP. While broader real estate fundamentals show mixed signals, including slowing industrial rent growth and rising retail vacancies, these specific REITs are highlighted for their resilient business models and strategic positioning, suggesting potential for stable returns and long-term growth despite prevailing market uncertainties.

Analysis

The REIT sector is exhibiting divergent fundamentals ahead of second-quarter earnings. The industrial real estate segment, while still resilient, is showing signs of cooling, with vacancy rates rising to 7.1% for the first time since 2014 and asking rent growth slowing to its weakest pace since early 2020 at 2.6%. Concurrently, the retail real estate segment is facing more pronounced headwinds, evidenced by a second consecutive quarter of negative net absorption and an availability rate that has climbed to 4.9% due to retailer downsizing. Against this backdrop, a quantitative screening approach identifies three REITs with potential for positive earnings surprises. Plymouth Industrial REIT (PLYM) presents the most compelling profile with a Zacks Rank #2 (Buy) and a significant Earnings ESP of +2.33%, driven by its capital redeployment and acquisition strategy. Americold Realty Trust (COLD) is positioned as a defensive holding, benefiting from non-cyclical demand for its temperature-controlled warehouses and showing a positive Earnings ESP of +0.74%. Realty Income (O) is also flagged, though its signals are more moderate with a +0.30% ESP; while its revenue is projected to grow 4.21% to $1.40 billion, its adjusted funds from operations (AFFO) per share are expected to be flat year-over-year at $1.06, indicating potential margin pressure or dilutive effects from its recent strategic expansions.

Key Decisions for Investors

• Given the mixed performance across REIT sub-sectors, investors should prioritize stock-specific fundamentals over a broad-based sector allocation, focusing on companies with clear catalysts for outperformance.
• Consider tactical positioning in Plymouth Industrial REIT (PLYM) ahead of its earnings release, as its combination of a 'Buy' rating and the highest Earnings ESP (+2.33%) suggests a strong probability of a positive surprise.
• For Realty Income (O), monitor the upcoming earnings report closely to assess whether its strategic portfolio expansions are translating to bottom-line growth, as flat year-over-year AFFO per share is a key concern despite rising revenue.
• Investors seeking defensive exposure within the real estate sector might evaluate Americold Realty Trust (COLD) for its essential-service business model, which is less correlated with broader economic cycles.