It is no secret how the industrial real estate asset category has been playing a crucial role in recent 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 high-income urban areas have been witnessing solid pricing, occupancy and growth in rentals.
And 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 are transforming 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.
Per the U.S. Commerce Department, e-commerce sales soared 44% year over year in the June-end quarter. Moreover, eMarketer expects e-retail sales to contribute a whopping 14.5% to total U.S. retail sales this year. This 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, driving leasing and development activity.
And why wouldn’t that be? On an average, online retailers require three times the warehouse spaces compared with traditional retailers. In addition, demand is emerging not only from the direct-to-consumer e-commerce companies but also from retail and consumer product firms. These companies are focusing on their supply-chain networks to cater to the skyrocketing demand from online shoppers amid the pandemic.
As such, the industrial asset category is witnessing low vacancy rates, high-asking rents and robust rent collections. This is also ensuring more certainty as well as the fuel for investments in this sector.
Furthermore, 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. 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 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 Zacks Consensus Estimate for the current-year funds from operations (FFO) per share moved 1.4% north over the past two months to $3.73. It also indicates an increase of 12.7% year on year.
Duke Realty Corp. DRE 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 the ongoing-year FFO per share moved 2.8% upward over the past two months to $1.49. It also calls for 3.5% year-over-year growth.
Industrial Logistics Properties Trust ILPT is focused on the ownership and leasing of industrial and logistics properties, primarily in the United States. Healthy fundamentals of the industrial and logistics markets keep driving the company’s growth. This REIT 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 1.6% upward in two months’ time to $1.87. It also suggests a year-over-year improvement of 6.3%.
Rexford Industrial Realty REXR is focused on acquisition, ownership and operation of industrial properties situated in Southern California in-fill markets. The Zacks Consensus Estimate for the 2020 FFO per share has been revised nearly 1% upward over the past 30 days to $1.28. This also indicates a year-on-year improvement of 4.1% on estimated revenue growth of 15.3%.
Here’s the share price performance of the above-mentioned REITs in the past six 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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Prologis, Inc. (PLD): Free Stock Analysis Report
Duke Realty Corporation (DRE): Free Stock Analysis Report
Rexford Industrial Realty, Inc. (REXR): Free Stock Analysis Report
Industrial Logistics Properties Trust (ILPT): Free Stock Analysis Report
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