We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
4 REIT Stocks You Can Bet on Post Dismal Performance in Q2
Read MoreHide Full Article
The coronavirus pandemic and the consequent shutdowns worldwide have affected the U.S. economy and businesses, and REITs are no exception. The sector put up a dismal performance in the June-end quarter, during which asset categories that were directly exposed to the virus and the pandemic-induced social-distancing measures suffered the most.
Per the recent data from the Nareit T-Tracker, second-quarter 2020 funds from operations (FFO) was down 21.7% sequentially, while occupancy shrunk 290 basis points to 89.9%. The same-store net operating income (NOI) fell 7.5% year on year. Also, a number of REITs were compelled to cut dividends due to lower earnings and for preserving liquidity.
Particularly, the FFO of Lodging/Resort REITs tanked to a negative $1.1 billion in the second quarter from the slightly positive performance in the first. Retail and Healthcare REITs too delivered disappointing results during this period, reporting a 25% and 16.7% sequential decline in the FFO, respectively.
However, not all REITs were hit that hard and thus, there have been gainers too. This is because REITs’ underlying asset categories as well as location of the properties play key roles in determining their performance. And certain industries have been benefiting from the pandemic situation, creating demand for spaces for their growing operations.
Specifically, the property sectors that offer support to the digital economy and e-commerce have been the beneficiaries. Data-center REITs recorded a 32.6% increase in FFO, while infrastructure REITs reported a 3.8% rise sequentially. For Industrial REITs, same-store net operating income (NOI) was up 2.6%, year on year, while occupancy expanded 35 basis points to 95.9% in the recently-reported quarter.
Moreover, REITs seem to be enjoying greater financial resilience this time, on an overall basis. In the decade prior to the pandemic, these companies made commendable efforts to lower their leverage ratios and improve the balance-sheet strength. These only strengthened their abilities to battle the coronavirus mayhem. Apart from this, debt maturities have been lengthened, while interest coverage ratios are still high, lowering the refinancing pressure and liquidity risks.
The debt-to-book-asset ratio of 50.8% changed little from the prior quarter, hovering near the lows reached in recent years, and much below compared with the 58.3% seen in 2008. Also, REITs have longer debt maturities (weighted average maturity of REIT debt was 83.4 months, or nearly seven years, up from 82.3 months in the prior quarter and up from less than five years in 2008). Also, though the weighted average interest coverage ratio declined from 4.1x in the first quarter to 3.4x in the second, coverage ratios are still well above the 2.6x witnessed during the 2008 financial crisis.
After hitting rock bottom in April, economic activity is also picking up pace, encouragingly, which saw further improvement in July and August. This is good news for REITs because increase in economic activity spurs demand for real estate spaces. And as long as there are no major holdbacks due to the pandemic, a number of property sectors will likely benefit.
The social-distancing friendly sectors as well as the providers of critical infrastructure for the digital economy like data centers, infrastructure including cell phone towers, and industrial will continue being the gainers. Also, demand for apartments will still be high as people need a place to live and there is housing shortages in several markets.
Furthermore, though the work-from-home trend has kept business operations normal amid the crisis, the benefit of face-to-face interactions cannot be denied. Thus, pent-up demand and de-densification efforts will likely benefit the office market. Added to these, rent collections for industrial and office sector have been healthy. The beaten-down Retail REITs too are getting support from the rebound in retail sales in recent months and the improving rent collections.
Stocks to Consider
Here we have picked four REITs using the Zacks Screener. Apart from having robust fundamentals, these REITs have higher chances of market outperformance. Further, these stocks, each carrying a Zacks Rank #2 (Buy) currently, have been witnessing upward estimate revisions, reflecting analyst optimism.
Cousins Properties Incorporated (CUZ - Free Report) is an office REIT based in Atlanta, GA engaged in the development, acquisition, leasing, and management of Class A office properties throughout the high-growth Sunbelt markets of the United States. The Zacks Consensus Estimate for 2020 FFO per share has witnessed 1.1% upward revision over the past month, while the top line is projected to be up 13.6% year on year.
Duke Realty Corp. is engaged in owning, managing and developing industrial properties across the United States. With approximately 156 million rentable square feet of industrial assets in 20 major logistics markets, this domestic pure-play 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 has moved up 1.4% in the last week to $1.49, calling 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% for the April-June quarter in terms of FFO per share. The Zacks Consensus Estimate for this year’s FFO per share has moved 5.1% north in a month’s time to $1.87, suggesting a year-over-year improvement of 6.3%.
Four Corners Property Trust, Inc. (FCPT - Free Report) is mainly engaged in ownership, acquisition and leasing of restaurant and other retail properties on a net basis. The company maintains an investment-grade financial position and seeks attractive acquisition opportunities. The Zacks Consensus Estimate for the current-year FFO per share moved 9.2% upward over the past month to $1.43, while revenues are projected to climb 5.8% year on year.
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.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q2 2020, while the S&P 500 gained an impressive +44.0%, five of our strategies returned +50.9%, +93.8%, +122.2%, +153.0%, and even +156.8%.
This outperformance has not just been a recent phenomenon. From 2000 – Q2 2020, while the S&P averaged +5.5% per year, our top strategies averaged up to +51.7% per year.
Image: Bigstock
4 REIT Stocks You Can Bet on Post Dismal Performance in Q2
The coronavirus pandemic and the consequent shutdowns worldwide have affected the U.S. economy and businesses, and REITs are no exception. The sector put up a dismal performance in the June-end quarter, during which asset categories that were directly exposed to the virus and the pandemic-induced social-distancing measures suffered the most.
Per the recent data from the Nareit T-Tracker, second-quarter 2020 funds from operations (FFO) was down 21.7% sequentially, while occupancy shrunk 290 basis points to 89.9%. The same-store net operating income (NOI) fell 7.5% year on year. Also, a number of REITs were compelled to cut dividends due to lower earnings and for preserving liquidity.
Particularly, the FFO of Lodging/Resort REITs tanked to a negative $1.1 billion in the second quarter from the slightly positive performance in the first. Retail and Healthcare REITs too delivered disappointing results during this period, reporting a 25% and 16.7% sequential decline in the FFO, respectively.
However, not all REITs were hit that hard and thus, there have been gainers too. This is because REITs’ underlying asset categories as well as location of the properties play key roles in determining their performance. And certain industries have been benefiting from the pandemic situation, creating demand for spaces for their growing operations.
Specifically, the property sectors that offer support to the digital economy and e-commerce have been the beneficiaries. Data-center REITs recorded a 32.6% increase in FFO, while infrastructure REITs reported a 3.8% rise sequentially. For Industrial REITs, same-store net operating income (NOI) was up 2.6%, year on year, while occupancy expanded 35 basis points to 95.9% in the recently-reported quarter.
Moreover, REITs seem to be enjoying greater financial resilience this time, on an overall basis. In the decade prior to the pandemic, these companies made commendable efforts to lower their leverage ratios and improve the balance-sheet strength. These only strengthened their abilities to battle the coronavirus mayhem. Apart from this, debt maturities have been lengthened, while interest coverage ratios are still high, lowering the refinancing pressure and liquidity risks.
The debt-to-book-asset ratio of 50.8% changed little from the prior quarter, hovering near the lows reached in recent years, and much below compared with the 58.3% seen in 2008. Also, REITs have longer debt maturities (weighted average maturity of REIT debt was 83.4 months, or nearly seven years, up from 82.3 months in the prior quarter and up from less than five years in 2008). Also, though the weighted average interest coverage ratio declined from 4.1x in the first quarter to 3.4x in the second, coverage ratios are still well above the 2.6x witnessed during the 2008 financial crisis.
After hitting rock bottom in April, economic activity is also picking up pace, encouragingly, which saw further improvement in July and August. This is good news for REITs because increase in economic activity spurs demand for real estate spaces. And as long as there are no major holdbacks due to the pandemic, a number of property sectors will likely benefit.
The social-distancing friendly sectors as well as the providers of critical infrastructure for the digital economy like data centers, infrastructure including cell phone towers, and industrial will continue being the gainers. Also, demand for apartments will still be high as people need a place to live and there is housing shortages in several markets.
Furthermore, though the work-from-home trend has kept business operations normal amid the crisis, the benefit of face-to-face interactions cannot be denied. Thus, pent-up demand and de-densification efforts will likely benefit the office market. Added to these, rent collections for industrial and office sector have been healthy. The beaten-down Retail REITs too are getting support from the rebound in retail sales in recent months and the improving rent collections.
Stocks to Consider
Here we have picked four REITs using the Zacks Screener. Apart from having robust fundamentals, these REITs have higher chances of market outperformance. Further, these stocks, each carrying a Zacks Rank #2 (Buy) currently, have been witnessing upward estimate revisions, reflecting analyst optimism.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cousins Properties Incorporated (CUZ - Free Report) is an office REIT based in Atlanta, GA engaged in the development, acquisition, leasing, and management of Class A office properties throughout the high-growth Sunbelt markets of the United States. The Zacks Consensus Estimate for 2020 FFO per share has witnessed 1.1% upward revision over the past month, while the top line is projected to be up 13.6% year on year.
Duke Realty Corp. is engaged in owning, managing and developing industrial properties across the United States. With approximately 156 million rentable square feet of industrial assets in 20 major logistics markets, this domestic pure-play 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 has moved up 1.4% in the last week to $1.49, calling 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% for the April-June quarter in terms of FFO per share. The Zacks Consensus Estimate for this year’s FFO per share has moved 5.1% north in a month’s time to $1.87, suggesting a year-over-year improvement of 6.3%.
Four Corners Property Trust, Inc. (FCPT - Free Report) is mainly engaged in ownership, acquisition and leasing of restaurant and other retail properties on a net basis. The company maintains an investment-grade financial position and seeks attractive acquisition opportunities. The Zacks Consensus Estimate for the current-year FFO per share moved 9.2% upward over the past month to $1.43, while revenues are projected to climb 5.8% year on year.
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.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q2 2020, while the S&P 500 gained an impressive +44.0%, five of our strategies returned +50.9%, +93.8%, +122.2%, +153.0%, and even +156.8%.
This outperformance has not just been a recent phenomenon. From 2000 – Q2 2020, while the S&P averaged +5.5% per year, our top strategies averaged up to +51.7% per year.
See their latest picks free >>