Many REITs will experience substantial losses in the coming months as their retail tenants receive free or reduced rent during this pandemic. However, only one REIT is expected to benefit from the growing demand for e-commerce.
WPT Real Estate Investment Trust
Like most actions, the shares of WPT Real Estate Investment Trust (TSX: WIR.U) was hammered in mid-March when investors realized the severity of the COVID-19 pandemic. But the WPT has made impressive gains since then.
As of this writing, the stock is trading at $ 10.69 per share, which is significantly higher than its recent low of $ 6.19. In fact, the title has traded around $ 13 for most of the past year, and it looks like the title is on track to reach that level again. WPT currently has a dividend yield of 7.11%.
E-commerce demand growing faster than expected
According to several property developers, home stay mandates have catapulted the e-commerce market. Steven McCraney, CEO of Florida-based developer McCraney Property Co., said, “The past six to eight weeks have put e-commerce four years ahead of its growth cycle than expected.” McCraney made the comments in an interview on the growing shift to electronic commerce.
As brick and mortar retailers are shocked by this crisis, e-commerce sales are booming, sending big names like Amazon, Home Depot, FedEx and UPS, looking for space to set up distribution warehouses.
These companies are trying to take advantage of the economic slowdown and secure rental spaces to meet current and future demand.
This is good news for WPT. The company has a portfolio of light industrial real estate in the United States. Amazon is one of its top 10 tenants.
WPT REIT’s solid balance sheet
At the end of last year, WPT reported an occupancy rate of 99% with an average lease term of 4.9 years. The REIT ended 2019 with debt at gross book value of 42.3%, an interest coverage rate of 3.1 times and debt of eight times adjusted EBITDA.
Before COVID-19, demand for light industrial real estate was already outpacing supply due to the massive popularity of online shopping. The closure of most retail establishments during the coronavirus epidemic has significantly increased this demand.
E-commerce companies need large logistics operations to meet inventory, packaging and delivery needs. These square foot requirements are far greater than the square foot requirements of traditional tenants.
This low volume of industrial real estate coupled with growing demand has created a growing shortage of suitable properties. As the popularity of online shopping increases, this demand will further increase, leading to higher prices and rents, which is good news for REITs like WPT who specialize in exactly this type of real estate.
WPT is in the enviable position of being able to take advantage of the unique industrial needs created by home orders. The REIT may also benefit from government programs designed to help rental properties during the economic crisis, as well as lower interest rates.
Lower interest rates reduce the cost of financing properties, increasing WPT’s profitability and profits.
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John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a member of the board of directors of The Motley Fool. Find contributor Cindy Dye owns shares of Amazon. David Gardner owns shares of Amazon and FedEx. The Motley Fool owns shares of Amazon, FedEx and Home Depot and recommends the following options: long calls from January 2021 to $ 120 on Home Depot, short calls from January 2021 to $ 210 on Home Depot, short calls from January 2022 to $ 1940 1940 on Amazon and long January 2022 $ 1920 calls on Amazon.