Markets
UE

Zacks Industry Outlook Highlights: CBRE Group, EPR Properties, GEO Group, Urban Edge Properties and Piedmont Office Realty Trust

Tablet displaying intraday stock performance

For Immediate Release

Chicago, IL - February 03, 2017 - Today, Zacks Equity Research discusses the Industry: REITs, Part 2, including CBRE Group Inc. (NYSE: CBG - Free Report ), EPR Properties (NYSE: EPR - Free Report ), GEO Group, Inc. (NYSE: GEO - Free Report ), Urban Edge Properties (NYSE: UE - Free Report ) and Piedmont Office Realty Trust, Inc. (NYSE: PDM - Free Report ).

Industry: REITs, Part 2

Link: https://www.zacks.com/commentary/102802/forget-a-rate-hike-here-are-reasons-to-be-optimistic-on-reits

Despite the looming Fed tightening and bond market pullback, there are enough reasons to be cautiously optimistic on REITs. Prominent among these are the industry's inherent fundamental strength and sufficient scope to excel under the Trump presidency.

In fact, fiscal stimulus like tax reduction and infrastructure spending drive demand, fuel economic growth and push up inflation and amid all this, the fundamentals of the real estate industry also get a boost. But as not all asset categories are equally capable of thriving, it would be apt to find out those real estate areas that have favorable supply-demand dynamics and the opportunity to prosper. Further, the creation of the exclusive headline sector for real estate under the GICS raised expectations of drawing in billions and pushing up valuations over time.

So if investors can manage short-term hiccups in treasury yields and digest the rate hike issue, the strengthening of the REIT industry will likely ensure solid long-term gains. Also, these hiccups can offer you solid entry points.

Industrial REIT

In the industrial real estate market, demand for space has been high for several quarters. Per a study by the commercial real estate services' firm CBRE Group Inc. (NYSE: CBG - Free Report ), for the U.S. industrial market, availability fell for 26 straight quarters to 8.2% in fourth-quarter 2016.

Amid economic expansion, e-commerce boom and heightened urbanization, companies are shifting their strategy toward services like same-day delivery and other such options, propelling demand for warehouse distribution facilities. And with a larger customer base, they are opting for supply-chain consolidation, resulting in greater demand for logistics infrastructure and efficient distribution networks, thereby creating scope for industrial REITs to flourish. And with supply remaining considerably tight, growth in rent has been strong in most of the industrial markets in the nation in recent quarters.

Moreover, construction of mega industrial houses spanning 1 million square feet or more is rampant in large industrial markets, according to another report from CBRE Group. Around 90 million square feet of these mega facilities, which benefit from growing e-commerce business, have been accomplished since 2010 in the top 10 markets, while an additional 31.6 million square feet is under construction, with 60% pre-commitments, reflecting solid demand for such facilities.

Against such a favorable backdrop, the industrial sector has climbed great heights, logged in an impressive total return of 30.72% and emerged as the top performing Equity REIT market segment for the year.

Data Center REITs

Growth in cloud computing, Internet of Things and big data is not only helping tech companies, it is also driving demand for data center REITs. In fact, these REITs pulled in their capital and scored well on the return book, registering total returns of 26.41% in 2016.

Office REIT

Office REITs are experiencing decent demand in recent times. In fact, the overall office vacancy rate declined 10 basis points (bps) to 12.9% in fourth-quarter 2016, denoting the lowest level since first-quarter 2008. Also, in 2016, gross asking rent growth touched 6.0%, which denoted the fastest annual rate since 2007. Going forward, with economic improvement and recovery in the job market, demand for office space is expected to shoot higher.

Residential REIT

In apartment markets, supply has been a major concern in recent months, particularly in the high end and luxury apartment categories. However, market fundamentals are still steady in the mid-range markets. So companies having a portfolio that is diversified both in terms of geography and price points have the scope to enjoy relatively stable revenues.

On the other hand, the student housing market recorded solid rent growth in the fall 2016 leasing session, though leasing slowed to some extent, per a recent study by Axiometrics. Going by statistics, the effective rent levels for fall 2016 averaged $618 per bed nationally. This denotes a rise of 2.3% from the year-ago period, with the majority of properties averaging in the range of 2-4%.

Moreover, with a higher education earnings gap - millennials with high school diploma are earning just 62% of what college graduates are making - college enrollment is set to increase and this would drive up demand of residential units that student REITs lease. Also, there is pent-up demand for new, purpose-built student housing properties that have better amenities than old, outdated housing.

Further, student housing REITs have decent opportunities to excel in the coming years as demand is emanating for on-campus developments from universities that are facing state budget cuts and low funds, and are incapable of developing or renovating their ageing housing properties. And on-campus housing usually enjoy full occupancy.

Retail REIT

For retail REITs, issues like decline in mall traffic and store closures amid the online sales boom will dominate the market going ahead. However, the way mall REITs came forward to acquire Aeropostale and save the apparel retailer from bankruptcy has set an example in the market. This could in fact be a way retail landlord address their tenants' business troubles in the future.

Moreover, upbeat consumer confidence and increasing consumer spending amid an improving economy infuse optimism in the retail market. Further, amid rising competition from online retailers, retail REITs are focusing on the omni-channel retailing concept, transforming their boring shopping hubs into swanky entertainment zones and distribution centers as well as embracing the latest technologies to offer attractive services to tenants and mall visitors. Eventually, such measures are likely to help in increasing traffic.

Retail REITs also prefer expansion of small shops, which comprise service-based industries such as saloons and spas, personal fitness, and medical practices. Such properties enjoy frequent customer traffic, are Internet-resistant, and therefore drive a dependable traffic.

Also, mixed-use developments have gained popularity for their solid neighborhood character, greater housing variety and density. Such developments lower the distance between housing, workplaces, retail businesses, and other amenities and destinations. Hence, such development enable the companies to grab the attention of people, who prefer to live, work and play in the same area - a trend that drove development in several other cities in the U.S.

Stocks to Add to Your Portfolio

Specific REITs that we prefer include EPR Properties (NYSE: EPR - Free Report ), The GEO Group, Inc. (NYSE: GEO - Free Report ), Urban Edge Properties (NYSE: UE - Free Report ) and Piedmont Office Realty Trust, Inc. (NYSE: PDM - Free Report ).

EPR Properties is specialty REIT that invests in three primary segments: Entertainment, Recreation and Education. EPR has a long-term growth rate of 8.3%, ahead of the industry average of 5.5%. It has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The GEO Group, Inc. is a REIT that specializes in the design, development, financing and operation of correctional, detention and community reentry facilities. It is a steady performer, having surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average surprise of 13.3%. It has a Zacks Rank #2. Also, its estimates for 2017 are moving north over the past three months.

Urban Edge Properties acquires, develops, owns, manages and improves shopping centers in urban communities. For Urban Edge Properties, the projected growth rate is 38.7% for 2016 and 5.4% for 2017.

Piedmont Office Realty Trust is engaged in the ownership, management, development, and operation of high-quality, Class A office properties situated in select sub-markets of major U.S. cities. It has a Zacks Rank #2 and its estimates for 2017 have moved north over the past two months.

Check out our latest REIT Industry Outlook here for more on the current state of affairs in this market from an earnings perspective.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?

Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>

Strong Stocks that Should Be in the News

Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.

Get the full Report on CBG - FREE

Get the full Report on EPR - FREE

Get the full Report on GEO - FREE

Get the full Report on UE - FREE

Get the full Report on PDM - FREE

Follow us on Twitter: https://twitter.com/zacksresearch

Join us on Facebook: https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com/

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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

CBRE Group, Inc. (CBG): Free Stock Analysis Report

EPR Properties (EPR): Free Stock Analysis Report

Geo Group Inc (The) (GEO): Free Stock Analysis Report

Urban Edge Properties (UE): Free Stock Analysis Report

Piedmont Office Realty Trust, Inc. (PDM): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

UE EPR GEO PDM

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More