Complete Your Black Friday Shopping With These 4 REITs

If Thanksgiving Day celebrates nature’s bounty, then Black Friday and the month thereafter is for retailers to rejoice in abundant sales. And why not? Despite increasing tariffs, trade-war tensions and a global economic slowdown, consumers are expected to splurge as the labor market remains healthy with low unemployment and rising wages. The economy, currently in its record 11th year of expansion, is still reporting growth, though at a sluggish pace.

Moreover, despite the slight dip in the latest consumer confidence reading, overall, the level is good enough to support a strong holiday sales season. This optimism is evident from the eMarketer projections as well, which guide a 3.8% year-over-year jump in U.S. holiday retail sales to $1.008 trillion this year. This again indicates the first ever trillion-dollar holiday season.

While Black Friday is anticipated to witness solid sales, Cyber Monday is likely to emerge as the biggest online shopping day in the U.S. history, with sales poised to reach and even exceed $10 billion. Per eMarketer’s projections, while in-store sales will be up 2.5%, year on year, to $872.25 billion during the holiday season, e-commerce sale will grow 13.2% to $135.35 billion.

Moreover, the projections from National Retail Federation (NRF) paint an encouraging picture, with holiday retail sales — excluding restaurants, automobile dealers and gasoline stations — anticipated to climb 3.8-4.2% from the prior year to a total of $727.9-$730.7 billion. Particularly, online and other non-store sales are estimated to jump 11-14% to a total of $162.6-$166.9 billion, up from the $146.5 billion reported during the same period last year.

E-retail is most likely considered to be leading the game right now, which is also casting a pall over mall landlords with downsizing and store closures on the rise. However, online sales too need real space for storage and efficient distribution of products.

Particularly, in a rising e-commerce market, the industrial real estate asset category has grabbed headlines and continues to play a pivotal role, 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 are witnessing solid pricing, occupancy and growth in rentals.

Furthermore, demand for distribution space has been rising, as e-commerce continues to spread out to sectors like grocery and furniture. Also, apart from e-retail, companies are making immense efforts to improve their supply-chain efficiencies, propelling demand for logistics infrastructure and efficient distribution networks, in turn, enabling industrial landlords to enjoy a favorable market environment. Moreover, these REITs pulled in their capital and scored well on the return book, with total returns of 53.60% since the beginning of the year through Nov 27, as against the 28.12% logged by the S&P 500.

Nonetheless, retail REITs too are fast catching up with this trend. In fact, crippled by lesser traffic in malls, store closures and retailer bankruptcies, retail REITs are now making strategic moves, transforming their retail properties from traditional retail hubs into entertainment destinations and lifestyle resorts, focusing on expansion of dining options, opening movie theaters, as well as offer recreational facilities and fitness centers. Additionally, the brick-and-mortar space still constitutes a commendable part of the holiday sales, though its share has declined steadily.

Stock Picks

Therefore 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 Prologis, Inc. PLD, which sports a Zacks Rank #1 (Strong Buy), at the moment. Backed by its balance-sheet strength and prudent financial management, this San Francisco, CA-based industrial REIT, Prologis remains well poised to grow in the days ahead. The company has been actively banking on its growth opportunities through acquisitions and developments. Also, being a market leader, it has the ability to raise capital at favorable rates.

This stock is also witnessing positive funds from operations (FFO) per share estimate revisions, reflecting investors’ bullish view on the stock. In fact, the Zacks Consensus Estimate for 2019 and 2020 FFO per share has been revised upward 1.2% and 4.3%, respectively, in two months’ time.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Our next industrial REIT stock pick is Duke Realty Corporation DRE, an Indianapolis, IN-based leading domestic pure-play industrial REIT that focuses on building a superior portfolio of industrial properties through acquisitions and development, on a speculative and build-to-suit basis, in high-barrier markets with solid growth potential. This Zacks Rank #2 (Buy) stock has witnessed positive estimate revisions in terms of FFO per share over the past month. The current-year FFO per share estimate also indicates a projected increase of 8.3%, year over year.

Another industrial landlord is Chicago, IL-based First Industrial Realty Trust, Inc. FR, which 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. It currently carries a Zacks Rank #2 and has a long-term growth rate of 6.4%. Moreover, for 2019, the stock has seen the Zacks Consensus Estimate for FFO per share being revised marginally upward to $1.74 over the past month.

The cart will be incomplete without a retail REIT. A promising one on the shelf is Oak Brook, IL-based Retail Properties of America, Inc. RPAI, which is engaged in owning and operating premium open-air shopping centers that are strategically located, as well as properties with a mixed-use component. It currently carries a Zacks Rank of 2. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised marginally upward over the last 30 days.

Here’s how the above stocks have performed so far in the year.

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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