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Industrial REITs Poised to Shine on Robust Demand: 4 Top Picks
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The industrial real estate asset category has been, undoubtedly, playing a crucial role for the past few years in the growing e-commerce market, transforming the way how consumers shop and receive their goods. Services like same-day delivery are gaining traction, and last-mile properties in affluent neighborhoods have been witnessing solid pricing, occupancy and growth in rentals.
And now, social-distancing measures are fueling online orders, in turn, substantially boosting e-commerce’s share of total retail sales, and spurring demand for warehouse and distribution space. Therefore, despite the COVID-19 pandemic wreaking havoc across several asset classes, the industrial asset category has shown resilience with low vacancy rates, high asking rents, positive net absorptions and robust rent collections.
Per a CBRE Group (CBRE - Free Report) report, the average asking rents finished the mid-year at $7.96 per square feet, marking a 6.3% increase year on year. In addition, the asset category has a near-record low overall vacancy rate of 4.7%. Moreover, when rent collection issues are plaguing the entire real estate market, it is the industrial sector that seems to have emerged as a solid performer so far.
Remarkably, apart from the fast adoption of e-commerce, the industrial real estate space is anticipated to benefit over the long run from a likely increase in inventory levels. This is because, in response to the pandemic along with trade disruptions, there is a sound possibility of a shift from a lean supply-chain strategy to a more resilient one.
The diversification of supply chains away from China as well as companies intending to maintain higher levels of inventory as a precaution for any supply-chain disruptions will likely keep the demand for industrial real estate elevated apart from the e-commerce boom.
Furthermore, developers are bullish on this asset category. Apart from this, projects under construction climbed to 309.7 million square feet in the second quarter from the 298 million square feet reported in the first, with roughly 36% of this space being preleased.
Stocks to Consider
Here we have picked four industrial REITs using the Zacks Screener. Apart from having robust fundamentals and delivering decent results in the second quarter, these REITs have higher chances of market outperformance. Also, these stocks, each carrying a Zacks Rank #2 (Buy), have been witnessing positive estimate revisions, reflecting analyst optimism.
Prologis (PLD - Free Report) is a leading industrial REIT that acquires, develops, operates and manages industrial properties in the United States and across the globe. The company continues to benefit from the scale of its platform. Per the company’s "Future Flow of Goods" study (first conducted in 2017), which was commissioned to independent advisory firm Oxford Economics this time to update, the flow of goods through Prologis buildings represents 2.5% of global GDP — 4.4% of global household consumption. The flow of goods was 1.7% of global GDP in 2017.
The stock delivered a surprise of 12.1% in terms of funds from operations (FFO) per share in the recently-reported quarter on growth in rental income and healthy occupancy level. The Zacks Consensus Estimate for the current-year FFO per share moved 3.6% north over the past month to $3.72. It also indicates an increase of 12.4% year on year.
Duke Realty Corp. is engaged in owning, managing and developing industrial properties across the United States. The domestic pure-play industrial REIT’s better-than-expected second-quarter numbers reflect rent growth on new and renewal leases, higher in-service occupancy and leasing of new developments. In addition, the company collected or has executed deferral agreements for 99.9% of second-quarter rents and 99.9% of July rents.
With approximately 156 million rentable square feet of industrial assets in 20 major logistics markets, this industrial REIT is likely to keep witnessing solid demand from e-commerce and traditional distribution customers.The Zacks Consensus Estimate for the ongoing-year FFO per share moved 1.4% upward over the past week to $1.49. It also calls for 3.5% year-over-year growth.
Industrial Logistics Properties Trust (ILPT - Free Report) is focused on the ownership and leasing of industrial and logistics properties, primarily in the United States. Healthy fundamentals of the industrial and logistics market continue to support the company’s growth, with the REIT delivering a surprise of 2.17% in the April-June quarter in terms of FFO per share.
The Zacks Consensus Estimate for this year’s FFO per share has been revised 4.5% upward in a month’s time to $1.87. It also suggests a year-over-year improvement of 6.3%.
Terreno Realty Corporation (TRNO - Free Report) targets functional buildings at in-fill locations, which enjoy high-population densities and are located near high-volume distribution points. Backed by such efforts, the company is well poised to fortify its portfolio in the six major coastal U.S. markets — Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington, DC — which display solid demographic trends and witness healthy demand for industrial real estates.
This industrial REIT came up with a surprise of 2.86% in the recently-reported quarter in terms of FFO per share. The Zacks Consensus Estimate for the full-year FFO per share moved marginally north over the past week to $1.43. It also indicates 3.6% year-over-year growth.
Here’s the share price performance of the above-mentioned REITs in the past three months.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Industrial REITs Poised to Shine on Robust Demand: 4 Top Picks
The industrial real estate asset category has been, undoubtedly, playing a crucial role for the past few years in the growing e-commerce market, transforming the way how consumers shop and receive their goods. Services like same-day delivery are gaining traction, and last-mile properties in affluent neighborhoods have been witnessing solid pricing, occupancy and growth in rentals.
And now, social-distancing measures are fueling online orders, in turn, substantially boosting e-commerce’s share of total retail sales, and spurring demand for warehouse and distribution space. Therefore, despite the COVID-19 pandemic wreaking havoc across several asset classes, the industrial asset category has shown resilience with low vacancy rates, high asking rents, positive net absorptions and robust rent collections.
Per a CBRE Group (CBRE - Free Report) report, the average asking rents finished the mid-year at $7.96 per square feet, marking a 6.3% increase year on year. In addition, the asset category has a near-record low overall vacancy rate of 4.7%. Moreover, when rent collection issues are plaguing the entire real estate market, it is the industrial sector that seems to have emerged as a solid performer so far.
Remarkably, apart from the fast adoption of e-commerce, the industrial real estate space is anticipated to benefit over the long run from a likely increase in inventory levels. This is because, in response to the pandemic along with trade disruptions, there is a sound possibility of a shift from a lean supply-chain strategy to a more resilient one.
The diversification of supply chains away from China as well as companies intending to maintain higher levels of inventory as a precaution for any supply-chain disruptions will likely keep the demand for industrial real estate elevated apart from the e-commerce boom.
Furthermore, developers are bullish on this asset category. Apart from this, projects under construction climbed to 309.7 million square feet in the second quarter from the 298 million square feet reported in the first, with roughly 36% of this space being preleased.
Stocks to Consider
Here we have picked four industrial REITs using the Zacks Screener. Apart from having robust fundamentals and delivering decent results in the second quarter, these REITs have higher chances of market outperformance. Also, these stocks, each carrying a Zacks Rank #2 (Buy), have been witnessing positive estimate revisions, reflecting analyst optimism.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Prologis (PLD - Free Report) is a leading industrial REIT that acquires, develops, operates and manages industrial properties in the United States and across the globe. The company continues to benefit from the scale of its platform. Per the company’s "Future Flow of Goods" study (first conducted in 2017), which was commissioned to independent advisory firm Oxford Economics this time to update, the flow of goods through Prologis buildings represents 2.5% of global GDP — 4.4% of global household consumption. The flow of goods was 1.7% of global GDP in 2017.
The stock delivered a surprise of 12.1% in terms of funds from operations (FFO) per share in the recently-reported quarter on growth in rental income and healthy occupancy level. The Zacks Consensus Estimate for the current-year FFO per share moved 3.6% north over the past month to $3.72. It also indicates an increase of 12.4% year on year.
Duke Realty Corp. is engaged in owning, managing and developing industrial properties across the United States. The domestic pure-play industrial REIT’s better-than-expected second-quarter numbers reflect rent growth on new and renewal leases, higher in-service occupancy and leasing of new developments. In addition, the company collected or has executed deferral agreements for 99.9% of second-quarter rents and 99.9% of July rents.
With approximately 156 million rentable square feet of industrial assets in 20 major logistics markets, this industrial REIT is likely to keep witnessing solid demand from e-commerce and traditional distribution customers.The Zacks Consensus Estimate for the ongoing-year FFO per share moved 1.4% upward over the past week to $1.49. It also calls for 3.5% year-over-year growth.
Industrial Logistics Properties Trust (ILPT - Free Report) is focused on the ownership and leasing of industrial and logistics properties, primarily in the United States. Healthy fundamentals of the industrial and logistics market continue to support the company’s growth, with the REIT delivering a surprise of 2.17% in the April-June quarter in terms of FFO per share.
The Zacks Consensus Estimate for this year’s FFO per share has been revised 4.5% upward in a month’s time to $1.87. It also suggests a year-over-year improvement of 6.3%.
Terreno Realty Corporation (TRNO - Free Report) targets functional buildings at in-fill locations, which enjoy high-population densities and are located near high-volume distribution points. Backed by such efforts, the company is well poised to fortify its portfolio in the six major coastal U.S. markets — Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington, DC — which display solid demographic trends and witness healthy demand for industrial real estates.
This industrial REIT came up with a surprise of 2.86% in the recently-reported quarter in terms of FFO per share. The Zacks Consensus Estimate for the full-year FFO per share moved marginally north over the past week to $1.43. It also indicates 3.6% year-over-year growth.
Here’s the share price performance of the above-mentioned REITs in the past three months.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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