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Industrial REITs Poised to Shine on Robust Demand: 4 Key Players
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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. Moreover, apart from e-retail, companies are making strategic moves to boost supply-chain efficiencies, spurring demand for logistics infrastructure and efficient distribution networks.
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, thanks to the social-distancing norm driving online orders. In fact, the industrial real estate market is still firing on all cylinders even mid-year with robust demand, rents and pipeline that are scaling new records.
What is encouraging is that demand in the U.S. industrial market outpaced supply for the second straight quarter, per a report from Cushman & Wakefield (CWK - Free Report) . There was a net absorption of 110.2 million square feet (msf) of space in the June-end quarter, marking the most space ever absorbed in a single quarter of any year reported by Cushman & Wakefield. The tally is 96.7% higher than the 56 msf reported in second-quarter 2020. Warehouse/distribution space emerged as the strongest secondary property type.
For the 22nd consecutive quarter, new leasing activity exceeded 100 msf and came in at 212.5 msf. It seems that with such a surge in demand, new leasing activity is well poised to surpass 600 msf by the end of 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 140.6 msf at the end of second-quarter 2021, reflecting a 14.2% decline from the 164 msf reported in the year-earlier period.
The U.S. industrial vacancy rate came in at 4.5% at the end of second-quarter 2021, shrinking 40 basis points (bps) quarter over quarter and 60 bps, year on year. For all product types, vacancy rate is 180 bps below the 10-year historical average of 6.3%. 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, Philadelphia, the Inland Empire, Los Angeles, Central New Jersey,Boston, Fort Myers/Naples, Boise, Reno and Hampton Roads, VA, all of which reported vacancy rates at 2.4% or lower in the second quarter.
Continued tight market conditions and solid demand supported rent growth during the June-end quarter, which increased 6.8% year on year. Asking rent of $7.03 per square foot during the quarter in discussion turned out to be another record high rental rate for the U.S. industrial market. In addition, the current industrial construction pipeline exceeded 400 msf for the first time and reached a new record high for the market to 476.1 msf.
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.
Here’s how these Industrial REITs are placed Ahead of Q2 Earnings:
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, the average beat being 5.21%. This industrial REIT behemoth carries a Zacks Rank #3 (Hold), presently.
Prologis is slated to report second-quarter 2021 earnings on Jul 19, before the bell. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $1.03 billion, suggesting an 8.97% year-over-year jump. The Zacks Consensus Estimate for the quarterly FFO per share has moved marginally up to 99 cents in the past two months. Also, the full-year consensus estimate for FFO per share has been revised marginally upward over the past week to $4.01.
Duke Realty Corp. is a domestic pure-play industrial REIT engaged in owning, managing and developing industrial properties across the United States. With approximately 162 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. Currently, it carries a Zacks Rank of 3. Over the preceding four quarters, the stock has beaten the Zacks Consensus Estimate in two occasions for as many in line performance, the average beat being 1.32%.
Duke Realty is scheduled to release its earnings results on Jul 28, after market close. The Zacks Consensus Estimate for April-June quarter revenues is currently pegged at $256.3 million, indicating a 13.2% increase year on year. The estimate for quarterly FFO per share of 43 cents also suggests a 13.2% jump year over year.The full-year consensus estimate for FFO per share also moved marginally north over the past week to $1.69.
Rexford Industrial Realty, Inc. (REXR - Free Report) is focused on acquisition, ownership and operation of industrial properties situated in Southern California in-fill markets. Recently, the company announced shelling $188.9 million for the acquisition of five industrial properties in prime in-fill Southern California markets. With these buyouts, the company’s 2021 acquisition activity has, so far, reached $420 million. Moreover, there are more than $600 million of additional investments under contract or LOI. Southern California is considered the United States’ highly-valued industrial property market with supply constraints. Presently, Rexford carries a Zacks Rank #2 (Buy).Over the trailing four quarters, it has beaten the Zacks Consensus Estimate on three occasions and met in the other, the average beat being 3.75%.
Rexford's quarterly results will be released on Jul 21, after market close. The consensus mark for second-quarter revenues is currently pegged at $101.8 million, suggesting a 27.3% increase from the year-earlier quarter. The estimate for quarterly FFO per share moved north over the past month to 36 cents, calling for a 12.5% 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. Over the trailing four quarters, the company has beaten the Zacks consensus Estimate on three occasions and missed in the other, the average beat being 2.07%.
Terreno Realty expects to file its quarterly report on Form 10-Q for the second quarter on or about Aug 4. The Zacks Consensus Estimate for second-quarter revenues is currently pinned at $51.6 million, calling for a 12.9% increase, year on year. The consensus mark of 41 cents for the quarterly FFO per share also calls for a 13.9% increase year over year.
Here’s the share-price performance of the above-mentioned REITs in the past six months.
Image Source: Zacks Investment Research
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 Key Players
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. Moreover, apart from e-retail, companies are making strategic moves to boost supply-chain efficiencies, spurring demand for logistics infrastructure and efficient distribution networks.
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, thanks to the social-distancing norm driving online orders. In fact, the industrial real estate market is still firing on all cylinders even mid-year with robust demand, rents and pipeline that are scaling new records.
What is encouraging is that demand in the U.S. industrial market outpaced supply for the second straight quarter, per a report from Cushman & Wakefield (CWK - Free Report) . There was a net absorption of 110.2 million square feet (msf) of space in the June-end quarter, marking the most space ever absorbed in a single quarter of any year reported by Cushman & Wakefield. The tally is 96.7% higher than the 56 msf reported in second-quarter 2020. Warehouse/distribution space emerged as the strongest secondary property type.
For the 22nd consecutive quarter, new leasing activity exceeded 100 msf and came in at 212.5 msf. It seems that with such a surge in demand, new leasing activity is well poised to surpass 600 msf by the end of 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 140.6 msf at the end of second-quarter 2021, reflecting a 14.2% decline from the 164 msf reported in the year-earlier period.
The U.S. industrial vacancy rate came in at 4.5% at the end of second-quarter 2021, shrinking 40 basis points (bps) quarter over quarter and 60 bps, year on year. For all product types, vacancy rate is 180 bps below the 10-year historical average of 6.3%. 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, Philadelphia, the Inland Empire, Los Angeles, Central New Jersey,Boston, Fort Myers/Naples, Boise, Reno and Hampton Roads, VA, all of which reported vacancy rates at 2.4% or lower in the second quarter.
Continued tight market conditions and solid demand supported rent growth during the June-end quarter, which increased 6.8% year on year. Asking rent of $7.03 per square foot during the quarter in discussion turned out to be another record high rental rate for the U.S. industrial market. In addition, the current industrial construction pipeline exceeded 400 msf for the first time and reached a new record high for the market to 476.1 msf.
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.
Here’s how these Industrial REITs are placed Ahead of Q2 Earnings:
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, the average beat being 5.21%. This industrial REIT behemoth carries a Zacks Rank #3 (Hold), presently.
Prologis is slated to report second-quarter 2021 earnings on Jul 19, before the bell. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $1.03 billion, suggesting an 8.97% year-over-year jump. The Zacks Consensus Estimate for the quarterly FFO per share has moved marginally up to 99 cents in the past two months. Also, the full-year consensus estimate for FFO per share has been revised marginally upward over the past week to $4.01.
Duke Realty Corp. is a domestic pure-play industrial REIT engaged in owning, managing and developing industrial properties across the United States. With approximately 162 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. Currently, it carries a Zacks Rank of 3. Over the preceding four quarters, the stock has beaten the Zacks Consensus Estimate in two occasions for as many in line performance, the average beat being 1.32%.
Duke Realty is scheduled to release its earnings results on Jul 28, after market close. The Zacks Consensus Estimate for April-June quarter revenues is currently pegged at $256.3 million, indicating a 13.2% increase year on year. The estimate for quarterly FFO per share of 43 cents also suggests a 13.2% jump year over year.The full-year consensus estimate for FFO per share also moved marginally north over the past week to $1.69.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Rexford Industrial Realty, Inc. (REXR - Free Report) is focused on acquisition, ownership and operation of industrial properties situated in Southern California in-fill markets. Recently, the company announced shelling $188.9 million for the acquisition of five industrial properties in prime in-fill Southern California markets. With these buyouts, the company’s 2021 acquisition activity has, so far, reached $420 million. Moreover, there are more than $600 million of additional investments under contract or LOI. Southern California is considered the United States’ highly-valued industrial property market with supply constraints. Presently, Rexford carries a Zacks Rank #2 (Buy).Over the trailing four quarters, it has beaten the Zacks Consensus Estimate on three occasions and met in the other, the average beat being 3.75%.
Rexford's quarterly results will be released on Jul 21, after market close. The consensus mark for second-quarter revenues is currently pegged at $101.8 million, suggesting a 27.3% increase from the year-earlier quarter. The estimate for quarterly FFO per share moved north over the past month to 36 cents, calling for a 12.5% 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. Over the trailing four quarters, the company has beaten the Zacks consensus Estimate on three occasions and missed in the other, the average beat being 2.07%.
Terreno Realty expects to file its quarterly report on Form 10-Q for the second quarter on or about Aug 4. The Zacks Consensus Estimate for second-quarter revenues is currently pinned at $51.6 million, calling for a 12.9% increase, year on year. The consensus mark of 41 cents for the quarterly FFO per share also calls for a 13.9% increase year over year.
Here’s the share-price performance of the above-mentioned REITs in the past six months.
Image Source: Zacks Investment Research
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.