Industrial REITs to Shine in Q3 Earnings on Robust Demand
The industrial real estate asset category has been playing a crucial role in the growing e-commerce market, transforming 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.
This brings the focus on industrial landlords like Prologis PLD, EastGroup Properties, Inc. EGP, STAG Industrial, Inc. STAG and Terreno Realty Corporation TRNO, which are poised to benefit from this favorable environment. And with the Q3 reporting season around the corner, it’s time to check how they are placed ahead of their earnings.
What is encouraging is that despite the economic headwinds and uncertainty and the recession woes in the third quarter, the U.S. industrial market fundamentals remained strong and steady per a report from Cushman & Wakefield CWK, with “heightened levels of absorption” and rents scaling new highs.
There was a net absorption of 108.2 million square feet (msf) of space in the September-end quarter, a level consistent with very strong demand. It also marks the eighth straight quarter where absorption surpassed the 100 msf mark. Through the first three quarters of the current year, absorption totaled 358.8 msf, which is higher than any year on record except 2021. Moreover, the new leasing activity reached 163.1 msf in the third quarter.
The U.S. industrial vacancy rate remained “tight” at 3.2%, denoting a 20-basis point (bps) quarter-over-quarter uptick. Moreover, each region in the United States once again reported vacancy rates sub-4%, with the lowest being the West region at only 2.5%.
With elevated demand and high occupancy rates, rental rates continued to scale new heights. The U.S. overall industrial asking rental rate ended the third quarter at $8.70 per square foot (psf), denoting a 4% sequential increase and a 22% annual surge. In fact, it marked the strongest year-over-year growth rate recorded, per the Cushman & Wakefield report.
Resilience is essential to the future supply chain and so, over the long term, apart from the fast adoption of e-commerce, logistics real estate is expected to benefit from a likely increase in inventory levels.
However, with the asset category being attractive, there is a development boom in a number of markets. Per the CWK report, development activity picked up pace in the third quarter, with 148.2 msf of industrial facilities being delivered throughout the United States, the highest quarterly total on record. Also, the industrial construction pipeline reached another all-time high of 716.9 msf in the third quarter, which is 2.6% ahead of the previous high a quarter ago. The high supply is likely to have intensified competition during the September-end quarter.
Here’s how these Industrial REITs are placed ahead of Q3 earnings:
Prologis 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. Recently, Prologis completed the acquisition of Duke Realty. Over the trailing four quarters, Prologis beat the Zacks Consensus Estimate in terms of funds from operations (FFO) per share on three occasions and missed in the other, the average beat being 0.71%. This industrial REIT behemoth carries a Zacks Rank #4 (Sell) presently.
Prologis is slated to report third-quarter 2022 earnings on Oct 19, before the bell. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $1.13 billion, suggesting an 8.8% year-over-year jump. The Zacks Consensus Estimate for quarterly FFO per share is presently pegged at $1.73, calling for a 66.4% surge year over year.
EastGroup Properties is engaged in the development, acquisition and operation of industrial properties and focuses on properties in major Sunbelt markets throughout the United States, emphasizing on assets in the states of Florida, Texas, Arizona, California and North Carolina. With its strategy of ownership of high-quality distribution facilities clustered near major transportation features in supply-constrained submarkets, this industrial REIT is expected to have benefited from the robust fundamentals of the industrial real estate market.
Currently, EGP carries a Zacks Rank #2 (Buy). It has a decent surprise history, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 3.19%.
EastGroup Properties is scheduled to release its earnings on Oct 25, after market close. The Zacks Consensus Estimate for July-September quarter revenues is currently pegged at $125.2 million, indicating a 19.7% increase year on year. The estimate for quarterly FFO per share has moved 2 cents north in the past two months to $1.75 and also suggests a 12.9% jump year over year.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
STAG Industrial, which focuses on the acquisition, ownership and operation of industrial properties throughout the United States, is also anticipated to have witnessed healthy demand on the fast adoption of e-commerce, with leasing activity getting support in the to-be-reported quarter. Moreover, with supply chains transforming for faster fulfillment and resilience, STAG is likely to have captured favorable fundamentals.
Presently, STAG Industrial carries a Zacks Rank #2. Over the trailing four quarters, it beat the Zacks Consensus Estimate on three occasions and missed in the other, the average beat being 2.40%.
STAG's quarterly results will be released on Oct 27, after market close. The consensus mark for third-quarter revenues is currently pegged at $165.85 million, suggesting a 16.7% increase from the year-earlier quarter. The estimate for quarterly FFO per share of 54 cents also calls for a 1.89% uptick year on year.
Terreno Realty targets functional assets 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 beat the Zacks Consensus Estimate on two occasions, met the same in one quarter and missed in the other, the average beat being 0.55%. Currently, TRNO carries a Zacks Rank #2.
Terreno Realty is expected to file its quarterly report on Form 10-Q for the third quarter on or about Nov 2. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $64.6 million, calling for a 12.7% increase, year on year. The consensus mark of 50 cents for the quarterly FFO per share also calls for an 11.1% increase year over year.
Here’s the share-price performance of the above-mentioned REITs in the past three 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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Prologis, Inc. (PLD) : Free Stock Analysis Report
Terreno Realty Corporation (TRNO) : Free Stock Analysis Report
Stag Industrial, Inc. (STAG) : Free Stock Analysis Report
EastGroup Properties, Inc. (EGP) : Free Stock Analysis Report
Cushman & Wakefield PLC (CWK) : Free Stock Analysis Report
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