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3 Equity REIT Stocks Worth Investing in as the Industry Rebounds
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The REIT and Equity Trust - Other industry is likely to benefit from the resilience and strong fundamentals of a number of asset categories. Healthy trends in healthcare real estate, advertising space and selective rebound in the office category poise players like Healthpeak Properties, Inc. (DOC - Free Report) , Lamar Advertising Company (LAMR - Free Report) and Cousins Properties Incorporated (CUZ - Free Report) well for growth. Moreover, the recent expectations regarding the interest rate cut have renewed enthusiasm in the REITs.
However, geopolitical unrest and choppiness in the macroeconomic environment remain a concern, and customers are prioritizing cost management and delaying leasing decisions for certain asset categories.
About the Industry
The Zacks REIT and Equity Trust - Other sector comprises a diverse collection of REIT stocks representing various asset categories, including industrial, office, lodging, healthcare, self-storage, data centers, infrastructures and more. Equity REITs lease out space within these properties to tenants, generating income through rental payments. Economic growth assumes a central role within the real estate sector as economic expansion directly correlates with higher demand for real estate, increased occupancy rates and greater bargaining power for landlords to command higher rental rates. Moreover, the performance of Equity REITs hinges on the specific dynamics of their underlying assets and the geographic location of their properties. It is imperative to thoroughly explore the fundamentals of these asset categories before making any investment decisions.
What's Shaping the Future of the REIT and Equity Trust - Other Industry?
Resilient Demand Across Various Asset Classes Drives Growth Potential: The demand for several asset categories is expected to stay healthy in the near to mid-term. The projected increase in the senior citizen population, along with a rise in healthcare spending within this age group and restricted supply, suggests a positive outlook for healthcare REITs. Further, in today's digital era, there is a strong demand for data center space as businesses and service providers increasingly incorporate artificial intelligence into their strategies and drive their digital transformation initiatives, boosting growth prospects for data center REITs. For industrial real estate, even though rent growth is slowing, healthy demand is likely to keep this asset type in limelight. Meanwhile, in the office real estate sector, despite the impact of hybrid work arrangements on overall demand, there is a growing tenant preference for premium office spaces with superior amenities.
Interest Rate Cut Expectations Boost Attractiveness: The recent indications of a rate cut in the September FOMC meeting are likely to raise the attractiveness of the REITs. Any rate cut, even a slight one, is good news for the rate-sensitive REIT industry because REITs’ dependence on debt for business keeps investors optimistic about their performances in a rate-cut environment as the companies benefit from lower borrowing costs. Moreover, low interest rates contribute to higher valuations. Also, their dividend yield grabs investors’ attention more than yields on fixed-income and money market accounts in times like these.
Economic Choppiness to Hamper Near-Term Activity: Despite the positive trends, concerns persist about the impact of slower economic growth on commercial real estate activity. Geopolitical uncertainties add to these challenges. In this environment, customers are focused on cost control and are delaying leasing decisions, showing reduced urgency in making new commitments while waiting for further price discovery. By asset category, industrial real estate demand is being impacted. For office space, leasing activity is likely to continue to be affected by hybrid work arrangements and uncertainty in the broader business climate. In the self-storage sector, new customer price sensitivity and lower new customer rates are likely to create headwinds for these REITs in the near term. For Tower REITs, demand is expected to soften in the coming quarters due to reduced carrier capital expenditures and the churn effect, which could hurt profitability.
Zacks Industry Rank Indicates Bright Prospects
The Zacks REIT and Equity Trust - Other industry is housed within the broader Finance sector. It carries a Zacks Industry Rank #96, which places it in the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the northward revision of funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are gaining confidence in this group’s growth potential of late.
Before we present a few stocks that you might want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags the Stock Market Performance
The REIT and Equity Trust - Other Industry has underperformed both the S&P 500 composite and the broader Zacks Finance sector in a year.
The industry has risen 18.1% during this period compared with the S&P 500’s increase of 27% and the broader Finance sector’s 27.9% jump.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-FFO ratio, which is a commonly used multiple for valuing REIT - Others, we see that the industry is currently trading at 16.62X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.72X. The industry is trading above the Finance sector’s forward 12-month P/E of 16.03X. This is shown in the chart below.
Forward 12 Month Price-to-FFO (P/FFO) Ratio
Over the last five years, the industry has traded as high as 22.13X and as low as 12.81X, with a median of 17.80X.
3 REIT and Equity Trust - Other Stocks to Buy
Healthpeak Properties: Headquartered in Denver, CO, Healthpeak Properties has a diversified portfolio of high-quality healthcare properties across three core asset classes of outpatient medical, lab and continuing care retirement community real estate. The REIT’s top-quality healthcare real estate assets are positioned in the high-barrier-to-entry markets of the United States.
Solid demand for lab assets amid the increasing need for drug innovation and developments is likely to drive its lab portfolio’s growth. DOC is also poised to benefit from the rising senior citizens population and their high healthcare spending trends.
Its merger with Physicians Realty also has increased opportunities for internal and external growth. Encouraging capital-recycling moves and a healthy balance sheet bode well for long-term growth.
DOC currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the company’s 2024 revenues calls for a 23.7% increase year over year. The consensus mark for 2024 FFO per share has also been raised over the past three months to $1.79. The stock has risen 18.9% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lamar Advertising Company: This REIT is one of the largest owners and operators of outdoor advertising structures in the United States. The impressive footprint of outdoor advertising assets, the unmatched logo sign business, a diversified tenant base across various sectors and a focus on local businesses are tailwinds for Lamar.
Efforts to expand the digital platform and technological advancements in the low-cost, out-of-home advertising platform bode well for long-term growth.
Lamar currently carries a Zacks Rank #2. The Zacks Consensus Estimate for LAMR’s 2024 FFO per share has been raised six cents over the past month to $8.09.
Moreover, the Zacks Consensus Estimate for 2025 FFO per share has also moved up three cents over the same period. The stock has appreciated 12.7% in the past six months.
Cousins Properties: This Atlanta, GA-based office REIT has an unmatched portfolio of Class A office assets concentrated in the high-growth Sun Belt markets. This region is experiencing a population influx. Amid favorable migration trends and a pro-business environment, corporate relocations and expansions in the Sun Belt markets have gained pace, and this is driving the demand for office space.
It is seeing a recovery in demand for its high-quality, well-placed office properties, as highlighted by a rebound in new leasing volume. CUZ’s impressive tenant roster, opportunistic investments and developments in the best sub-markets and strong balance sheet will aid the growth momentum.
CUZ currently carries a Zacks Rank #2. The Zacks Consensus Estimate for the company’s 2024 FFO per share has been revised north over the past three months and is currently pegged at $2.66. The stock has also risen 23.5% in the past three months.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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3 Equity REIT Stocks Worth Investing in as the Industry Rebounds
The REIT and Equity Trust - Other industry is likely to benefit from the resilience and strong fundamentals of a number of asset categories. Healthy trends in healthcare real estate, advertising space and selective rebound in the office category poise players like Healthpeak Properties, Inc. (DOC - Free Report) , Lamar Advertising Company (LAMR - Free Report) and Cousins Properties Incorporated (CUZ - Free Report) well for growth. Moreover, the recent expectations regarding the interest rate cut have renewed enthusiasm in the REITs.
However, geopolitical unrest and choppiness in the macroeconomic environment remain a concern, and customers are prioritizing cost management and delaying leasing decisions for certain asset categories.
About the Industry
The Zacks REIT and Equity Trust - Other sector comprises a diverse collection of REIT stocks representing various asset categories, including industrial, office, lodging, healthcare, self-storage, data centers, infrastructures and more. Equity REITs lease out space within these properties to tenants, generating income through rental payments. Economic growth assumes a central role within the real estate sector as economic expansion directly correlates with higher demand for real estate, increased occupancy rates and greater bargaining power for landlords to command higher rental rates. Moreover, the performance of Equity REITs hinges on the specific dynamics of their underlying assets and the geographic location of their properties. It is imperative to thoroughly explore the fundamentals of these asset categories before making any investment decisions.
What's Shaping the Future of the REIT and Equity Trust - Other Industry?
Resilient Demand Across Various Asset Classes Drives Growth Potential: The demand for several asset categories is expected to stay healthy in the near to mid-term. The projected increase in the senior citizen population, along with a rise in healthcare spending within this age group and restricted supply, suggests a positive outlook for healthcare REITs. Further, in today's digital era, there is a strong demand for data center space as businesses and service providers increasingly incorporate artificial intelligence into their strategies and drive their digital transformation initiatives, boosting growth prospects for data center REITs. For industrial real estate, even though rent growth is slowing, healthy demand is likely to keep this asset type in limelight. Meanwhile, in the office real estate sector, despite the impact of hybrid work arrangements on overall demand, there is a growing tenant preference for premium office spaces with superior amenities.
Interest Rate Cut Expectations Boost Attractiveness: The recent indications of a rate cut in the September FOMC meeting are likely to raise the attractiveness of the REITs. Any rate cut, even a slight one, is good news for the rate-sensitive REIT industry because REITs’ dependence on debt for business keeps investors optimistic about their performances in a rate-cut environment as the companies benefit from lower borrowing costs. Moreover, low interest rates contribute to higher valuations. Also, their dividend yield grabs investors’ attention more than yields on fixed-income and money market accounts in times like these.
Economic Choppiness to Hamper Near-Term Activity: Despite the positive trends, concerns persist about the impact of slower economic growth on commercial real estate activity. Geopolitical uncertainties add to these challenges. In this environment, customers are focused on cost control and are delaying leasing decisions, showing reduced urgency in making new commitments while waiting for further price discovery. By asset category, industrial real estate demand is being impacted. For office space, leasing activity is likely to continue to be affected by hybrid work arrangements and uncertainty in the broader business climate. In the self-storage sector, new customer price sensitivity and lower new customer rates are likely to create headwinds for these REITs in the near term. For Tower REITs, demand is expected to soften in the coming quarters due to reduced carrier capital expenditures and the churn effect, which could hurt profitability.
Zacks Industry Rank Indicates Bright Prospects
The Zacks REIT and Equity Trust - Other industry is housed within the broader Finance sector. It carries a Zacks Industry Rank #96, which places it in the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the northward revision of funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are gaining confidence in this group’s growth potential of late.
Before we present a few stocks that you might want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags the Stock Market Performance
The REIT and Equity Trust - Other Industry has underperformed both the S&P 500 composite and the broader Zacks Finance sector in a year.
The industry has risen 18.1% during this period compared with the S&P 500’s increase of 27% and the broader Finance sector’s 27.9% jump.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-FFO ratio, which is a commonly used multiple for valuing REIT - Others, we see that the industry is currently trading at 16.62X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.72X. The industry is trading above the Finance sector’s forward 12-month P/E of 16.03X. This is shown in the chart below.
Forward 12 Month Price-to-FFO (P/FFO) Ratio
Over the last five years, the industry has traded as high as 22.13X and as low as 12.81X, with a median of 17.80X.
3 REIT and Equity Trust - Other Stocks to Buy
Healthpeak Properties: Headquartered in Denver, CO, Healthpeak Properties has a diversified portfolio of high-quality healthcare properties across three core asset classes of outpatient medical, lab and continuing care retirement community real estate. The REIT’s top-quality healthcare real estate assets are positioned in the high-barrier-to-entry markets of the United States.
Solid demand for lab assets amid the increasing need for drug innovation and developments is likely to drive its lab portfolio’s growth. DOC is also poised to benefit from the rising senior citizens population and their high healthcare spending trends.
Its merger with Physicians Realty also has increased opportunities for internal and external growth. Encouraging capital-recycling moves and a healthy balance sheet bode well for long-term growth.
DOC currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the company’s 2024 revenues calls for a 23.7% increase year over year. The consensus mark for 2024 FFO per share has also been raised over the past three months to $1.79. The stock has risen 18.9% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lamar Advertising Company: This REIT is one of the largest owners and operators of outdoor advertising structures in the United States. The impressive footprint of outdoor advertising assets, the unmatched logo sign business, a diversified tenant base across various sectors and a focus on local businesses are tailwinds for Lamar.
Efforts to expand the digital platform and technological advancements in the low-cost, out-of-home advertising platform bode well for long-term growth.
Lamar currently carries a Zacks Rank #2. The Zacks Consensus Estimate for LAMR’s 2024 FFO per share has been raised six cents over the past month to $8.09.
Moreover, the Zacks Consensus Estimate for 2025 FFO per share has also moved up three cents over the same period. The stock has appreciated 12.7% in the past six months.
Cousins Properties: This Atlanta, GA-based office REIT has an unmatched portfolio of Class A office assets concentrated in the high-growth Sun Belt markets. This region is experiencing a population influx. Amid favorable migration trends and a pro-business environment, corporate relocations and expansions in the Sun Belt markets have gained pace, and this is driving the demand for office space.
It is seeing a recovery in demand for its high-quality, well-placed office properties, as highlighted by a rebound in new leasing volume. CUZ’s impressive tenant roster, opportunistic investments and developments in the best sub-markets and strong balance sheet will aid the growth momentum.
CUZ currently carries a Zacks Rank #2. The Zacks Consensus Estimate for the company’s 2024 FFO per share has been revised north over the past three months and is currently pegged at $2.66. The stock has also risen 23.5% in the past three months.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.