The Zacks Analyst Blog Highlights: Cousins Properties, Duke Realty, Industrial Logistics Properties Trust and Four Corners Property Trust

Lenore Staats

For Immediate Release Chicago, IL – September 31, 2020 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Cousins Properties Inc. […]

For Immediate Release

Chicago, IL – September 31, 2020 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Cousins Properties Inc. CUZ, Duke Realty Corp. DRE, Industrial Logistics Properties Trust ILPT and Four Corners Property Trust, Inc. FCPT

Here are highlights from Friday’s Analyst Blog:

4 REIT Stocks You Can Bet On After Dismal Q2

The coronavirus pandemic and the consequent shutdowns worldwide have affected the U.S. economy and businesses, and REITs are no exception. The sector put up a dismal performance in the June-end quarter, during which asset categories that were directly exposed to the virus and the pandemic-induced social-distancing measures suffered the most.

Per the recent data from the Nareit T-Tracker, second-quarter 2020 funds from operations (FFO) was down 21.7% sequentially, while occupancy shrunk 290 basis points to 89.9%. The same-store net operating income (NOI) fell 7.5% year on year. Also, a number of REITs were compelled to cut dividends due to lower earnings and for preserving liquidity.

Particularly, the FFO of Lodging/Resort REITs tanked to a negative $1.1 billion in the second quarter from the slightly positive performance in the first. Retail and Healthcare REITs too delivered disappointing results during this period, reporting a 25% and 16.7% sequential decline in the FFO, respectively.

However, not all REITs were hit that hard and thus, there have been gainers too. This is because REITs’ underlying asset categories as well as location of the properties play key roles in determining their performance. And certain industries have been benefiting from the pandemic situation, creating demand for spaces for their growing operations.

Specifically, the property sectors that offer support to the digital economy and e-commerce have been the beneficiaries. Data-center REITs recorded a 32.6% increase in FFO, while infrastructure REITs reported a 3.8% rise sequentially. For Industrial REITs, same-store net operating income (NOI) was up 2.6%, year on year, while occupancy expanded 35 basis points to 95.9% in the recently-reported quarter.

Moreover, REITs seem to be enjoying greater financial resilience this time, on an overall basis. In the decade prior to the pandemic, these companies made commendable efforts to lower their leverage ratios and improve the balance-sheet strength. These only strengthened their abilities to battle the coronavirus mayhem. Apart from this, debt maturities have been lengthened, while interest coverage ratios are still high, lowering the refinancing pressure and liquidity risks.

The debt-to-book-asset ratio of 50.8% changed little from the prior quarter, hovering near the lows reached in recent years, and much below compared with the 58.3% seen in 2008. Also, REITs have longer debt maturities (weighted average maturity of REIT debt was 83.4 months, or nearly seven years, up from 82.3 months in the prior quarter and up from less than five years in 2008). Also, though the weighted average interest coverage ratio declined from 4.1x in the first quarter to 3.4x in the second, coverage ratios are still well above the 2.6x witnessed during the 2008 financial crisis.

After hitting rock bottom in April, economic activity is also picking up pace, encouragingly, which saw further improvement in July and August. This is good news for REITs because increase in economic activity spurs demand for real estate spaces. And as long as there are no major holdbacks due to the pandemic, a number of property sectors will likely benefit.

The social-distancing friendly sectors as well as the providers of critical infrastructure for the digital economy like data centers, infrastructure including cell phone towers, and industrial will continue being the gainers. Also, demand for apartments will still be high as people need a place to live and there are housing shortages in several markets.

Furthermore, though the work-from-home trend has kept business operations normal amid the crisis, the benefit of face-to-face interactions cannot be denied. Thus, pent-up demand and de-densification efforts will likely benefit the office market. Added to these, rent collections for the industrial and office sector have been healthy. The beaten-down Retail REITs too are getting support from the rebound in retail sales in recent months and the improving rent collections.

Stocks to Consider

Here we have picked four REITs using the Zacks Screener. Apart from having robust fundamentals, these REITs have higher chances of market outperformance. Further, these stocks, each carrying a Zacks Rank #2 (Buy) currently, have been witnessing upward estimate revisions, reflecting analyst optimism.

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

Cousins Properties is an office REIT based in Atlanta, GA engaged in the development, acquisition, leasing, and management of Class A office properties throughout the high-growth Sunbelt markets of the United States. The Zacks Consensus Estimate for 2020 FFO per share has witnessed 1.1% upward revision over the past month, while the top line is projected to be up 13.6% year on year.

Duke Realty is 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 domestic pure-play 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 has moved up 1.4% in the last week to $1.49, calling for 3.5% year-over-year growth.

Industrial Logistics Properties Trust is focused on the ownership and leasing of industrial and logistics properties, primarily in the United States. Healthy fundamentals of the industrial and logistics market continue to support the company’s growth, with the REIT delivering a surprise of 2.17% for the April-June quarter in terms of FFO per share. The Zacks Consensus Estimate for this year’s FFO per share has moved 5.1% north in a month’s time to $1.87, suggesting a year-over-year improvement of 6.3%.

Four Corners Property Trustis mainly engaged in ownership, acquisition and leasing of restaurants and other retail properties on a net basis. The company maintains an investment-grade financial position and seeks attractive acquisition opportunities. The Zacks Consensus Estimate for the current-year FFO per share moved 9.2% upward over the past month to $1.43, while revenues are projected to climb 5.8% year on year.

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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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 information about the performance numbers displayed in this press release.

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Duke Realty Corporation (DRE): Free Stock Analysis Report

Cousins Properties Incorporated (CUZ): Free Stock Analysis Report

Four Corners Property Trust, Inc. (FCPT): Free Stock Analysis Report

Industrial Logistics Properties Trust (ILPT): Free Stock Analysis Report

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