Thanks to the rapid growth in e-commerce and Internet sales, retail real estate investment trust (“REIT”) industry is going through a sieving phase, with only the most competent firms managing to survive the race. Amid such intense competition, few big-shot mall owners like Simon Property Group Inc. SPG has been able to withstand the pressure.
From a diverse range of retail offerings to several efforts for supporting the omni-channel retailing concept, this Indianapolis-based retail REIT has gone great lengths to woo customers, drive in more footfalls at its properties. And it has its fundamentals intact with a robust balance sheet position and above-average net operating income (“NOI”). Besides, the dividend growth also makes it a good choice for investors.
Simon Property delivered an earnings surprise of 3.25% in the last reported quarter; while recording positive surprises in three out of trailing four quarters, with an average beat of 4.35%.
Its historical earnings per share (EPS) growth (for 3–5 years) of 11.28% stands well above the industry average of 6.32%. Moreover, the stock’s earnings momentum is expected to continue in the near term, as indicated by its projected EPS growth (F1/F0) rate of 13.54% compared with the industry average of 7.14%. This reflects strong prospects for the company.
Currently, Simon Property holds a Zacks Rank #2 (Buy), while the industry where it hails from carries a good Zacks Industry Rank of 34. Learn more about the Zacks Industry Rank here.
As the U.S. economy bounces back from the recession, consumer spending is likely to recover, although slowly. Further, with stabilization of the U.S. single-family housing market, consumer confidence is expected to rise, which should lead to higher retail sales.
Moreover, given the current low supply of new retail real estate space, demand for quality locations is projected to increase, which should translate into higher occupancy levels and rent growth. Given Simon Property’s high-quality portfolio of dynamic shopping centers, the company is anticipated to recover at a faster pace compared with its peers, making the stock a good pick for investors right now.
Is Simon Property the Only REIT Stock with Sturdy Prospects?
However, Simon Property is not the only stock with good prospects. This is because, despite the rate hike concerns, several of the REIT sectors are expected to enjoy growth in occupancies and hike in rents with employment and average wage level going up and overall economy gaining strength.
This made the REIT – Others and REIT – Residential industries grab top slots in the Zacks Industry Ranks. REIT – Others currently has a Zacks Industry Rank of 42 out of 265 companies (Top 16%) and REIT – Residential hold Zacks Industry Ranks of 45 (Top 17%). Being an occupier in the top slot of that ranking list, these categories of REITs enjoy an overall solid positive outlook for the near term.
Therefore, besides Simon Property, we have handpicked the following 4 REITs that also have good prospects in terms of healthy industry outlook and solid earnings projection.
CoreSite Realty Corp. COR is a Denver, CO-based other REIT stock. It is engaged in providing data center products and interconnection services. The data centers include ample as well as redundant power and advanced cooling & security systems.
Zacks Rank # 2
Zacks Industry Rank # 42
5-Year Historical EPS Growth = 30.71 (Industry Average = 6.61%)
This Year’s Estimated Growth (F(1)/F(0)) = 28.29 (Industry Average= 7.15%)
Essex Property Trust Inc. ESS is a Palo Alto, CA-based residential REIT engaged in acquisition, development, redevelopment and management of multifamily residential properties in supply-constrained markets.
Zacks Rank # 2
Zacks Industry Rank # 45
5-Year Historical EPS Growth = 14.46 (Industry Average = 9.98%)
This Year’s Estimated Growth (F(1)/F(0)) = 14.18 (Industry Average = 9.72%)
Based in San Diego, CA, Retail Opportunity Investments Corp. ROIC is a company from the retail REIT industry. It is engaged in acquiring, owning, leasing, repositioning and managing a diverse portfolio of necessity-based retail properties.
Zacks Rank # 2
Zacks Industry Rank # 34
5-Year Historical EPS Growth = 20.08 (Industry Average = 6.32%)
This Year’s Estimated Growth (F(1)/F(0)) = 12.24 (Industry Average = 7.14%)
Extra Space Storage Inc. EXR is a Salt Lake City-based other REIT company which acquires, develops and operates self-storage facilities.
Zacks Rank # 2
Zacks Industry Rank # 42
5-Year Historical EPS Growth = 27.79 (Industry Average = 6.61%)
This Year’s Estimated Growth (F(1)/F(0)) = 19.83 (Industry Average = 7.15%)
Conclusion
Though the interest rate hike may adversely affect the REIT sector en bloc in the near term, discernible signs of improvement in certain important economic metrics should also bring good news for the sector. Added to this, strong earnings potential along with the dividend catch will raise the attraction of these stocks.
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