The buzz among investors over the last few months has been about artificial intelligence (AI) stocks and how NVIDIA Corp. NVDA, Microsoft Corp. MSFT and many other tech companies are poised to make billions of dollars from the technology in years to come. As a result, Nvidia, Microsoft and other tech stocks have soared and brought the Nasdaq Stock Exchange back to life again.
But tech isn't the only game in town, and occasionally, slower-moving dividend stocks like real estate investment trusts (REITs) have their moments in the sun as well. Traders know that when it comes to making big gains on stocks it's not only what you buy, but when you buy it that counts.
Take a look at one heavily beaten down REIT that has rebounded to gain 107.37% over the last four weeks.
Industrial Logistics Properties Trust ILPT is a Newton, Massachusetts-based REIT that owns and leases 60 million square feet in 413 industrial and logistics properties throughout the United States. Industrial Logistics owns properties in 39 states, but 54% of those properties are in Hawaii. Of its annualized rental revenue, 78% is derived from investment-grade tenants, such as Amazon.com Inc., The Home Depot Inc. and FedEx Corp. Industrial Logistics is externally managed by the RMR Group Inc. RMR.
Industrial Logistics was among the worst performing REITs of 2022, falling 87% from $24.69 on the first trading day of the year to a closing price of $3.03 on Dec. 30. But the carnage wasn't over yet. Its share price continued to fall through the early spring of 2023, and on May 15, Industrial Logistics Properties Trust touched a new low of $1.64.
The market has a long history of overselling REITs when facing a potential recession, providing an incredible opportunity for investors to "lock in" massive yields. Gain access to insights from Benzinga's real estate research team with the free Weekly REIT Report.
The main reason for its dismal 17-month performance was its March 2022 acquisition of Monmouth Real Estate for $4 billion in cash. The purchase added $323 million in debt to Industrial Logistics' balance sheet, and despite substantial increases in revenue, the REIT's funds from operations (FFO) fell by 50% year over year in the third quarter, missing estimates as well.
In July 2022, to improve its liquidity position, Industrial Logistics was forced to cut its quarterly dividend from $0.33 to only $0.01 per share. This huge cut sent shares skidding almost 30% over the next several weeks. Management said it hoped to restore the dividend payouts by the end of 2023, but investors were not convinced.
Industrial Logistics' rental occupancies have also slipped from 99.2% in 2022 to 98.7% in 2023. While that's still admirable and not a huge decline, it makes investors nervous to hear that REIT occupancy levels are declining because it makes them wonder whether further reductions are forthcoming.
On April 25, Industrial Logistics announced its first-quarter 2023 operating results. Funds from operations (FFO) of $0.12 was far below FFO of $0.42 in the first quarter of 2022. But revenue of $110.26 beat the estimates of $106.64 million, and the stock rallied for a few days. But it was short-lived, and shares continued to fall until mid-May.
June brought a change in fortune. Within the past month, there have been several days where shares of Industrial Logistics spiked higher without any news whatsoever to propel the stock. For example, on June 13, Industrial Logistics closed at $2.26, up 18.9% on 4.3 million shares, about double the volume of the previous day.
On June 26, Prologis Inc. PLD announced it had acquired a $3.1 billion portfolio from Blackstone Inc. The news lifted many other industrial REITs, including Industrial Logistics, with shares climbing 22% from the previous day. On June 30, shares rose another 10%. Clearly, something was going on.
One possibility is that in anticipation of the Federal Reserve nearing the end of its tightening cycle, investors are beginning to snatch up oversold, badly beaten-down REITs. Some office REITs have rallied over 18% over the past month, and it looks like shares of some of the beaten-down industrial REITs, such as Industrial Logistics, are also being acquired at bargain prices. While it's true that it's easier for a stock to double from $1.80 than from a much larger share price, the increased volume on Industrial Logistics is a tip-off that institutional money has been at work.
Investors still should proceed cautiously. Industrial Logistics is a $3.80 stock that is now extremely overbought after doubling in price over the last month. After such a large gain, it could well be ready for a pullback.
Industrial Logistics announced that its second-quarter operating results will be declared after the closing bell on July 25. Given this latest rally on increased volume, it will be interesting to see those results.
Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has been working hard to identify the greatest opportunities in today’s market, which you can gain access to for free by signing up for Benzinga’s Weekly REIT Report.
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