The dust is settling among industrial REITs
Fidelity's Sam Wald says recent weakness among industrial REITs is masking business fundamentals and other favorable attributes that he believes point to growth potential.
- Industrial real estate investment trusts, a cornerstone of the commercial property market in years past, have struggled amid a supply/demand imbalance and sky-high investor expectations, yet Fidelity Portfolio Manager Sam Wald thinks these concerns may be overdone, creating a unique opportunity to invest in undervalued stocks.
- "Even if demand for industrial properties is a little slower to recover than expected, or if supply is a bit elevated, there's still a large gap between the rent charged by these firms and prevailing market rates," says Wald, who manages the U.S. real estate equity investments for Fidelity Advisor Asset Manager® 50%. "In other words, industry fundamentals should still be able to support future growth, as I see it."
- Wald employs a bottom-up, or stock-by-stock, investment approach in choosing securities of companies that own and, in most cases, operate commercial real estate properties. Together with Fidelity's dedicated research team, he determines the relative appeal of individual REITs as he seeks to take advantage of pricing discrepancies in the market.
- There are several industrial property companies in which Wald is finding value, led by Prologis, a major holding among real estate assets as of May 31. The firm is the world's largest owner of industrial properties, with 684 million square feet of space in 3,319 industrial facilities on four continents.
- "I consider Prologis to be a high-quality developer with access to institutional capital, all with the potential for new businesses that I do not see currently reflected in the company's depressed valuation," Wald says, explaining that its massive scale could open doors to new revenue streams that may extend beyond traditional leasing.
- For example, he imagines the rooftops of Prologis' facilities transformed into solar farms, generating clean energy while creating additional income. Wald also envisions battery-charging stations strategically placed near warehouses, catering to the growing demand for electric-vehicle infrastructure.
- He says the firm has expressed interest in either converting some existing facilities into data centers or building new ones from scratch.
- "Given that other businesses with ties to data centers have already seen substantial share-price gains, Prologis' entry into this arena could be a transformative move, as well as a potential catalyst for unlocking significant value that I don't believe the market recognizes," concludes Wald.
Fidelity Advisor Asset Manager 50% (FFIMX)
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