Kwarkot
As Mizuho sees industrial REITs’ core growth continuing to slow, contrary to the positive investor narrative, analyst Vikram Malhotra upgraded EastGroup Properties (NYSE:EGP) to Outperform and downgraded Terreno Realty (NYSE:TRNO) to Underperform.
For the sector overall, Mizuho’s analysis suggests that industrial REITS are still seeing decelerating demand and the firm believes a “lower ‘new normal’ of core earnings growth in FY26 is underappreciated.”
“Despite underperforming through early May, and then modestly outperforming, sub-sector valuation is fair at best, and we remain Neutral on the sub-sector over the medium-term,” Malhotra wrote in a note to clients. He notes that underlying earnings suggest 2025 core growth will slow as rent spreads decelerate and vacancies increase.
Sunbelt-focused EastGroup (EGP) merits an Outperform rating as several factors appear to be under-appreciated by the market. Submarket rent growth is likely above expectations, and EGP has a historical track record of capital allocation, making it a more defensive pick, Malhotra said.
Meanwhile, the Terreno (TRNO) downgrade is driven by increasing vacancy in its submarkets that should limit pricing power, slowing total growth, and its peer-average-like growth isn’t priced in; rather, it’s trading at a premium to its peer group.
Mizuho’s Outperform rating on EastGroup (EGP) contrasts with the SA Quant rating of Hold and aligns with the average Wall Street rating of Buy.
The Underperform rating on Terreno (TRNO) differs from the SA Quant rating of Hold and the average Wall Street rating of Buy.
EastGroup (EGP) stock rose 0.4% and Terreno stock (TRNO) was little changed in late morning trading on Thursday.
