Growing fears of a major global economic slump continue to weigh on financial markets. The Dow Jones Industrial is down by almost 9% for the year to date, and the S&P/TSX Composite has lost 3%.
The growing uncertainty surrounding markets highlights that now is the time to acquire quality stocks with solid defensive characteristics to hedge against rising economic and geopolitical risks. One stock that is attractively valued after the latest pullback is WPT Industrial REIT (TSX:WIR.U), having lost 5% over the last month, making now the time to buy.
Quality property portfolio
WPT owns a quality portfolio of light industrial properties with an extensive U.S. footprint. The REIT finished the third quarter 2019 with some solid numbers, including an impressive occupancy rate of 99.5%, a 27% year-over-year increase in net operating income (NOI), and a healthy 21% increase in adjusted funds from operations (AFFO).
WPT’s portfolio has a range of large top-quality corporate clients including leading online retailer Amazon.com. The growth of e-commerce and online retailing has created unique market conditions that are favourable for WPT and will act as a powerful tailwind for earnings over the long term.
The value of online retail sales globally is forecast to increase by 56% between the end of 2019 and 2023 to US$6.5 trillion, whereas in the U.S. alone, that increase is anticipated to be 55% over that period.
While online retailing does away with the need for brick-and-mortar stores and has sparked a surge in demand for light industrial properties, which can be used as storage and logistical centres. That combined with a lack of investment in light industrial real estate has created a market where demand far outstrips supply, thereby leading to higher asset values and rents. This will act as a powerful tailwind for WPT’s earnings growth for the foreseeable future.
A compelling reason to buy WPT is that the REIT is attractively valued, trading at a very modest 5% premium to its book value per unit after the latest sell-off. WPT’s book value will continue to grow. The REIT announced that it intends to acquire 26 U.S. logistics properties for US$730 million, which will also bolster earnings.
This is further enhanced by WPT’s regular monthly distribution yielding a very juicy 5.5%. That payment with a 90.3% payout ratio of adjusted cash flow from operations at the end of the third quarter 2019 appears sustainable.
As part of its strategic initiatives to grow its portfolio and earnings, WPT has focused on strengthening its balance sheet. Total debt is a conservative 49.6% of gross book value and just over eight times adjusted EBITDA.
The latest U.S. rate cut, where the Fed shaved 0.5% off the official rate, will reduce WPT’s debt burden and financing costs, which is particularly important in an uncertain operating environment where the REIT is focused on growing its business.
WPT is an attractively valued REIT, which is poised to surge once the market rebounds from the impact of the coronavirus. It has a solid balance sheet. After the latest market correction, it is trading at a very modest premium to its book value per unit, making now the time to buy and lock in a 5.5% yield.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Matt Smith has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon.