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4 Top Industrial REITs Poised to Shine on Stellar Demand
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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.
And now, the icing on the cake is the social-distancing norm amid this pandemic, which is fueling online orders and substantially boosting e-commerce’s share of total retail sales. Consumers’ habits have transformed at a rapid pace, and even the reluctant ones, who once favored in-store purchases, now prefer online purchases in order to avoid physical contact and spread of infection. Moreover, apart from e-retail, companies are making strategic moves to boost supply-chain efficiencies, propelling demand for logistics infrastructure and efficient distribution networks.
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.
In fact, the U.S. industrial market had an impressive start to this year with robust demand and record-high rents. What is encouraging is that demand outpaced supply for the first time since second-quarter 2019, per a report from Cushman & Wakefield (CWK - Free Report) . There was a net absorption of 82.3 million square feet (msf) of space in the March-end quarter, marking the most space ever absorbed in a first quarter of any year reported by Cushman & Wakefield. The tally is, in fact, up 78.2% over the 46.2 msf reported in first-quarter 2020. Particularly, warehouse/distribution space emerged as the strongest secondary property type.
For the 21st consecutive quarter, new leasing activity exceeded 100 msf and came in at 193.8 msf. It seems that with such a surge in demand, new leasing activity is well poised to surpass 600 msf by year-end 2021. This reflects the surge in digital sales, driving e-commerce leasing together with third-party logistics providers, which helped warehouses/distribution spaces. New supply aggregated 66.4 msf at the end of first-quarter 2021, reflecting a 14.8% decline from the 77.9 msf reported in the year-earlier period.
The U.S. industrial vacancy rate came in at 4.9% at the end of first-quarter 2021, down 30 basis points (bps) quarter over quarter and flat year on year. Specifically, for all product types, vacancy rate is 170 bps below the 10-year historical average of 6.6%. More demand for quality space in the market than supply can support contributes to this decline.
Among the tightest U.S. markets are Orange County, Los Angeles, Philadelphia, Central New Jersey, Nashville, Boise, Hampton Roads, Reno and Tulsa, all of which reported vacancy rates at 2.8% or lower in the first quarter.
Continued tight market conditions and solid demand supported rent growth during the March-end quarter, which increased 7.8% year on year. Particularly, asking rent of $6.90 per square foot during the quarter in discussion turn out to be another record high rental rate for the U.S. industrial market. In addition, the current industrial construction pipeline has reached a new record high for the market to 397.1 msf.
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.
Stocks to Consider
Here we have picked four industrial REITs using the Zacks Screener. These REITs have robust fundamentals and higher chances of market outperformance. Also, these stocks, each carrying a Zacks Rank #2 (Buy) at present, 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 worldwide. The company continues to benefit from the scale of its platform. The stock has a decent surprise history in terms of funds from operations (FFO) per share, having beaten estimates in each of the trailing four quarters, with an average beat of 5.03%.
Prologis is slated to report first-quarter 2021 earnings on Apr 19, before the bell. The Zacks Consensus Estimate for first-quarter revenues is currently pegged at $994.86 million, suggesting a 13.2% year-over-year jump. Moreover, the Zacks Consensus Estimate for the quarterly FFO per share has moved marginally up to 94 cents in the past two months. The figure also calls for a year-over-year increase of 13.25%. Also, the full-year consensus estimate for FFO per share was revised marginally upward over the past week to $3.95.
Duke Realty Corp. is a domestic pure-play industrial REIT engaged in owning, managing and developing industrial properties across the United States. With approximately 159 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.
Duke Realty is scheduled to release its earnings results on Apr 28, after the market close. The Zacks Consensus Estimate for January-March quarter revenues is currently pegged at $250.9 million, indicating a 14.7% increase year on year. The estimate for quarterly FFO per share of 39 cents also suggests an 18.2% jump year over year. The full-year consensus estimate for FFO per share also moved marginally north over the past week to $1.67.
First Industrial Realty Trust, Inc. (FR - Free Report) , a Chicago, IL-based industrial landlord focuses on management, lease, acquisition, (re)development, and selling of bulk and regional distribution centers, light industrial, and other industrial facility types across major markets in the United States.
First Industrial's quarterly results will be released on Apr 21, 2021 after market close. The consensus mark for first-quarter revenues is currently pegged at $113.10 million, suggesting a 2.5% increase from the year-earlier quarter. The estimate for quarterly FFO per share moved north over the past two months to 46 cents, calling for a 2.2% uptick year on year.
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.
Terreno Realty expects to file its quarterly report on Form 10-Q for the first quarter on or about May 5, 2021. The Zacks Consensus Estimate for first-quarter revenues is currently pinned at $49.23 million, calling for a 9.1% increase, year on year. The consensus mark of 39 cents for the quarterly FFO per share also calls for an 11.4% increase year over year.
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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It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Image: Bigstock
4 Top Industrial REITs Poised to Shine on Stellar Demand
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.
And now, the icing on the cake is the social-distancing norm amid this pandemic, which is fueling online orders and substantially boosting e-commerce’s share of total retail sales. Consumers’ habits have transformed at a rapid pace, and even the reluctant ones, who once favored in-store purchases, now prefer online purchases in order to avoid physical contact and spread of infection. Moreover, apart from e-retail, companies are making strategic moves to boost supply-chain efficiencies, propelling demand for logistics infrastructure and efficient distribution networks.
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.
In fact, the U.S. industrial market had an impressive start to this year with robust demand and record-high rents. What is encouraging is that demand outpaced supply for the first time since second-quarter 2019, per a report from Cushman & Wakefield (CWK - Free Report) . There was a net absorption of 82.3 million square feet (msf) of space in the March-end quarter, marking the most space ever absorbed in a first quarter of any year reported by Cushman & Wakefield. The tally is, in fact, up 78.2% over the 46.2 msf reported in first-quarter 2020. Particularly, warehouse/distribution space emerged as the strongest secondary property type.
For the 21st consecutive quarter, new leasing activity exceeded 100 msf and came in at 193.8 msf. It seems that with such a surge in demand, new leasing activity is well poised to surpass 600 msf by year-end 2021. This reflects the surge in digital sales, driving e-commerce leasing together with third-party logistics providers, which helped warehouses/distribution spaces. New supply aggregated 66.4 msf at the end of first-quarter 2021, reflecting a 14.8% decline from the 77.9 msf reported in the year-earlier period.
The U.S. industrial vacancy rate came in at 4.9% at the end of first-quarter 2021, down 30 basis points (bps) quarter over quarter and flat year on year. Specifically, for all product types, vacancy rate is 170 bps below the 10-year historical average of 6.6%. More demand for quality space in the market than supply can support contributes to this decline.
Among the tightest U.S. markets are Orange County, Los Angeles, Philadelphia, Central New Jersey, Nashville, Boise, Hampton Roads, Reno and Tulsa, all of which reported vacancy rates at 2.8% or lower in the first quarter.
Continued tight market conditions and solid demand supported rent growth during the March-end quarter, which increased 7.8% year on year. Particularly, asking rent of $6.90 per square foot during the quarter in discussion turn out to be another record high rental rate for the U.S. industrial market. In addition, the current industrial construction pipeline has reached a new record high for the market to 397.1 msf.
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.
Stocks to Consider
Here we have picked four industrial REITs using the Zacks Screener. These REITs have robust fundamentals and higher chances of market outperformance. Also, these stocks, each carrying a Zacks Rank #2 (Buy) at present, 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 worldwide. The company continues to benefit from the scale of its platform. The stock has a decent surprise history in terms of funds from operations (FFO) per share, having beaten estimates in each of the trailing four quarters, with an average beat of 5.03%.
Prologis is slated to report first-quarter 2021 earnings on Apr 19, before the bell. The Zacks Consensus Estimate for first-quarter revenues is currently pegged at $994.86 million, suggesting a 13.2% year-over-year jump. Moreover, the Zacks Consensus Estimate for the quarterly FFO per share has moved marginally up to 94 cents in the past two months. The figure also calls for a year-over-year increase of 13.25%. Also, the full-year consensus estimate for FFO per share was revised marginally upward over the past week to $3.95.
Duke Realty Corp. is a domestic pure-play industrial REIT engaged in owning, managing and developing industrial properties across the United States. With approximately 159 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.
Duke Realty is scheduled to release its earnings results on Apr 28, after the market close. The Zacks Consensus Estimate for January-March quarter revenues is currently pegged at $250.9 million, indicating a 14.7% increase year on year. The estimate for quarterly FFO per share of 39 cents also suggests an 18.2% jump year over year. The full-year consensus estimate for FFO per share also moved marginally north over the past week to $1.67.
First Industrial Realty Trust, Inc. (FR - Free Report) , a Chicago, IL-based industrial landlord focuses on management, lease, acquisition, (re)development, and selling of bulk and regional distribution centers, light industrial, and other industrial facility types across major markets in the United States.
First Industrial's quarterly results will be released on Apr 21, 2021 after market close. The consensus mark for first-quarter revenues is currently pegged at $113.10 million, suggesting a 2.5% increase from the year-earlier quarter. The estimate for quarterly FFO per share moved north over the past two months to 46 cents, calling for a 2.2% uptick year on year.
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.
Terreno Realty expects to file its quarterly report on Form 10-Q for the first quarter on or about May 5, 2021. The Zacks Consensus Estimate for first-quarter revenues is currently pinned at $49.23 million, calling for a 9.1% increase, year on year. The consensus mark of 39 cents for the quarterly FFO per share also calls for an 11.4% increase year over year.
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.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Click here for the 4 trades >>