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2 REITs to Buy, 2 to Sell as Social Distancing Gets a Thumbs Up

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Social distancing or rather physical-distancing measures to curb the spread of coronavirus have emerged as the single most important factor governing economic activities around the globe. This has, in fact, resulted in a deviation between different sectors of the economy with one side, involving low face-to-face contact, showing resilience and even gaining, while the other side with higher risks for infection significantly bearing the brunt.

Similarly, with REITs offering the real estate structure for most economic activities, be it real or virtual, there are pockets of strengths and weaknesses too. Therefore, as an investor one must be prudent and reshuffle the portfolio according to the changing dynamics. What is important is to figure out whether or not the social-distancing related behaviors will create only short-term impact or induce long-term structural changes. Well, there might be hiccups but some of such situations can also offer buying opportunities.

Consider the e-commerce segment, particularly, that has been in the spotlight in recent years. Remarkably, the pandemic has proved to be substantially beneficial for this segment, with social-distancing needs prompting that massive push for the industry to flourish. Consumer habits are fast changing and even the reluctant ones who favored in-store purchases earlier are now compelled to go for online shopping in order to avoid physical contact and infection chances.

Per the U.S. Commerce Department, e-commerce sales soared 44% year over year in second-quarter 2020. Moreover, eMarketer expects e-retail sales to contribute a whopping 14.5% to total U.S. retail sales this year.

This rising tide is poised to lift all boats and specifically, the industrial REITs, which provide the critical infrastructure for e-commerce operations, are witnessing robust demand for spaces. This is, thus, offering much certainty as well as the thrust for investments in this sector. Apart from the fast adoption of e-retail, the industrial real estate space is anticipated to benefit over the long run from a likely increase in inventory levels.

Nevertheless, the situation is challenging for lodging REITs, which have the highest potential exposure to COVID-19 due to the face-to-face interactions. This sector is unlikely to see a full recovery until the coronavirus crisis dissipates or a vaccine is rolled out. In addition, though personal and vacation travel might recover and create demand for lodging spaces, business travel will likely be slower to recapture its lost ground, thanks to the online meetings and teleconferences substituting a number of in-person events.

2 Industrial REITs to Buy

Duke Realty Corp. (DRE - Free Report) is a domestic pure-play industrial REIT 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 industrial REIT is likely to keep witnessing solid demand from e-commerce and traditional distribution customers. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company for the ongoing-year funds from operations (FFO) per share moved 3.5% upward over the past two months 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 keep driving the company’s growth. This Zacks Rank #2 company delivered a surprise of 2.17% during 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 two months’ time to $1.87. It also suggests a year-over-year improvement of 6.3%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2 Lodging REITs to Sell

Park Hotels & Resorts Inc. (PK - Free Report) is a Tysons, VA-based lodging REIT, with a diverse portfolio of hotels and resorts mainly located in prime city centers and resort locations. This Zacks Rank #5 (Strong Sell) company has been witnessing downward estimate revisions for the current-year FFO per share, which is now pegged at a negative $1.44 compared with the negative $1.18 projected a month ago. Revenues for the year are estimated to slump 65.7% year on year.

RLJ Lodging Trust (RLJ - Free Report) has ownership of premium-branded, focused-service and compact full-service hotels. The company’s properties are located in 23 states and the District of Columbia. Also, this Zacks Rank #5 company is witnessing downward estimate revisions for the 2020 FFO per share. The figure is pegged at negative 88 cents compared with the negative 55 cents estimated two months ago. Moreover, revenues will likely plummet nearly 67% year on year.

Here is the price performance of the above-mentioned stocks over 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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