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4 REITs Your Black Friday Shopping Cart Must Have

Americans celebrated nature’s bounty on Thanksgiving Day. Now, Black Friday will kick off the annual holiday shopping season, giving retailers a chance to enjoy abundant sales.  And why not? With rising income backed by wage compensation and hefty savings accumulated during the pandemic, consumers are ready to splurge.

According to the National Retail Federation (“NRF”) Chief Economist Jack Kleinhenz, “The unusual and beneficial position we find ourselves in is that households have increased spending vigorously throughout most of 2021 and remain with plenty of holiday purchasing power.”

In fact, the projections from NRF paint an encouraging picture, with holiday retail sales — excluding restaurants, automobile dealers and gasoline stations — anticipated to climb 8.5-10.5% from the prior year to a total of $843.4-$859 billion, suggesting the highest holiday retail sales on record. Online and other non-store sales are estimated to jump 11-15% to a total of $218.3-$226.2 billion, up from the $196.7 billion reported during the same period last year.

Even though e-commerce is expected to remain a significant contributor, people are expected to opt for a more traditional holiday shopping experience this year and shift back to in-store shopping. In anticipation, the hiring for positions in bricks-and-mortar stores and warehouse and distribution centers have gained momentum.

This optimism would translate into greater benefits for the real estate sector – particularly the REITs. Higher retail sales — whether online or at physical stores — bring huge profits for these REITs. Increased footfall at malls and shopping center would create further demand for space. Online sales too need real space for storage and efficient distribution.

In addition, retailers are utilizing the last-mile stores as indispensable fulfillment and distribution centers to serve the dense population close by and outperforming pure e-commerce players on delivery times and cost efficiency. Also, curbside pick-up, combined with click-and-collect options, are likely to continue gaining attention in the present environment and even in the post-Covid era. And REITs making efforts along these lines are likely to add competitive advantage in current times.

Stock Picks

To capitalize on this trend, we have handpicked four stocks for your Black Friday cart. Aside from having solid fundamentals, these better-ranked REITs have high chances of market outperformance over the next 1-3 months. These stocks are witnessing positive estimate revisions too, reflecting analysts’ upbeat view.

We suggest investing in Simon Property Group SPG, which is a behemoth in the retail REIT industry and enjoys a portfolio of premium retail assets in the United States and abroad. The adoption of an omni-channel strategy and successful tie-ups with premium retailers have been aiding Simon Property Group. It is also tapping growth opportunities by assisting digital brands to enhance their brick-and-mortar presence, as well as capitalizing on buying recognized retail brands in bankruptcy.

Additionally, Simon Property is exploring the mixed-use development option, which has gained immense popularity in recent years among those who prefer to live, work and play in the same area. Moreover, with a solid balance-sheet strength and available capital resources, SPG looks poised to ride this growth curve and bank on opportunities emanating from market dislocations.

In the third quarter, Simon Property recorded increased leasing volumes, occupancy gains, shopper traffic and retail sales. Also, management raised the 2021 funds from operations (FFO) per share guidance to the $11.55-$11.65 range, up from the $10.70-$10.80 band projected earlier, suggesting an increase of 85 cents at the mid-point. Simon Property announced a 10% sequential hike in its fourth-quarter 2021 dividend. The company will now pay out $1.65 per share compared with the $1.50 paid out earlier. The increased dividend will be paid out on Dec 31 to its shareholders of record as of Dec 10, 2021.

Simon Property Group currently carries a Zacks Rank #2 (Buy). Over the past month, the Zacks Consensus Estimate for 2021 FFO per share witnessed upward revision of 3.8% to $11.28, reflecting analysts’ bullish outlook.

Another retail landlord is Federal Realty Investment Trust FRT, a North Bethesda, MD-based retail REIT boasting of a portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, D.C. to Boston, San Francisco and Los Angeles — along with a diverse tenant base, both national and local.

Federal Realty has strategically selected first-ring suburbs of nine major metropolitan markets. Due to the strong demographics and the infill nature of its properties, the company has been able to maintain a high occupancy level over the years. Moreover, its focus on open-air format and “The Pick-Up” concept has poised it well to lure tenants even amid the current health crisis. Furthermore, with the resumption of the economy, widespread vaccination and solid consumer spending, the retail REIT is poised to benefit from its superior assets in premium locations and experience improving leasing environment.

Currently, FRT carries a Zacks Rank #2 and has a long-term growth rate of 8.4%. Moreover, for 2021, the stock has seen the Zacks Consensus Estimate for FFO per share being revised 4.9% upward to $ 5.36 over the past month. This also suggests an increase of 18.6% year over year.

Our next pick is an industrial REIT stock — Rexford Industrial Realty, Inc. REXR — which is focused on the acquisition, ownership and operation of industrial properties situated in Southern California in-fill markets. Recently, Rexford announced shelling out $125.9 million to acquire five industrial properties in the prime in-fill Southern California submarkets.

With these buyouts, Rexford’s 2021 acquisition activity has reached $1.4 billion. Also, more than $300 million of acquisitions are under contract or have accepted offer. Southern California is considered a highly valued industrial property market with supply constraints in the United States.

Presently, Rexford carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised 2.5% upward over the last 30 days. This also indicates a projected increase of 23.5% year over year.

The cart will be incomplete without another industrial REIT. A promising one on the shelf is Bellevue, WA-based Terreno Realty Corporation TRNO, which targets functional buildings at in-fill locations, which enjoy high-population densities and are located near high-volume distribution points.

Terreno Realty recently shelled out $7.7 million to purchase an industrial property in Los Angeles, CA, as part of its acquisition-driven growth strategy. Backed by expansion efforts, TRNO is well poised to enhance 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 estate.

Terreno Realty currently carries a Zacks Rank of 2. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised marginally upward to $1.72 over the last 30 days. This calls for an increase of 19.4% year over year.

Here’s how the above stocks have performed in the past three months.

Image Source: Zacks Investment Research

Note: All EPS numbers presented in this write-up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Simon Property Group, Inc. (SPG): Free Stock Analysis Report
 
Federal Realty Investment Trust (FRT): Free Stock Analysis Report
 
Terreno Realty Corporation (TRNO): Free Stock Analysis Report
 
Rexford Industrial Realty, Inc. (REXR): Free Stock Analysis Report
 
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