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Troubled by Residential Real Estate? Buy These REITs Instead
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The continued surge in the housing market undoubtedly signal economic recovery. However, if you are an investor in the residential real estate investment trusts (REIT) category, the recent turnout of events may have raised your anxiety.
Things got worse for the residential REIT stocks that witnessed a significant sell-off over the past few days following a guidance cut for 2016 same store revenue by Equity Residential (EQR - Free Report) on Jun 1, owing to continued weakness in New York and the recent downturn in the San Francisco portfolio. (Read: Equity Residential Lowers Guidance Amid Market Weakness)
As a result, Equity Residential, which blamed new rental apartment supply for hurting rent growth, saw its share price fall 7.3% since the closing of trade on May 31. Other residential REITs like AvalonBay Communities, Inc. (AVB), Essex Property Trust Inc. (ESS) and UDR Inc. (UDR) followed suit.
Importantly, significant rent growth in the past made New York and San Francisco markets among the preferred ones for developers and landlords. So, new construction activity recently surged in these markets. But elevated supply of new units seems to have curtailed landlords’ capability to demand more rents.
Opportunity Lies Elsewhere
A downfall in the residential REITs space does not essentially mean that the scope for gains from the overall REIT industry is over. Investors of this special hybrid class can also benefit from the individual market dynamics of different asset types owned and managed by it.
Moreover, the space still looks attractive as the markets are not speculating a rate hike in June following the recent speech by Fed chief Janet Yellen, who despite sounding upbeat about U.S. economic growth, failed to give any hint on the timing of the next rate hike. This points to an extended period of low borrowing cost for the REITs. And given the low rate environment, their dividend yields also continue to look attractive.
Against this backdrop, we have handpicked the following top-ranked REITs that are expected to benefit from market fundamentals and are witnessing a surge in estimates.
Stock Picks
CoreSite Realty Corporation (COR - Free Report) with a Zacks Rank #1 (Strong Buy) provides data center products and interconnection services to telecommunication carriers, content and media entertainment providers, cloud providers, enterprise customers, financial and educational institutions, and government agencies. The company is headquartered in Denver, CO and has a market cap of $2.55 billion.
Amid growth in cloud computing, Internet of Things and big data, and an increased number of companies opting for third party IT infrastructure, data center REITs are gaining ground and experiencing a boom market. CoreSite Realty is efficiently capitalizing on this favorable environment. The company came up with a positive earnings surprise of 3.61% in the first quarter and has seen rising estimates for 2016 and 2017 over the past 30 days.
CoreSite also boasts a Growth Style score of “B”. According to our style score system, a stock with favorable Zacks Rank and Zacks Growth or Value Style Score of ‘A’ (or ‘B’) are highly desirable.
Summit Hotel Properties, Inc. (INN - Free Report) , which sports a Zacks Rank #1, is a hotel investment company. Based in Austin, TX, this company focuses on premium-branded, select-service hotels in the upscale section of the U.S. lodging industry.
Summit Hotel also posted a positive earnings surprise of 3.23% in first-quarter 2016. Also, the Zacks Consensus Estimates for 2016 and 2017 has increased 2.4% and 10.4%, respectively, over the past 30 days to $1.30 and $1.49 per share. Currently, the stock has a Value Style Score of “B” and a dividend yield of 4.44%.
W. P. Carey Inc. (WPC - Free Report) is also a Zacks Rank #1 company engaged in providing long-term sale-leaseback and build-to-suit financing for companies. Based in New York, this firm with a market cap of $6.9 billion boasts a diversified portfolio including properties from warehouse/distribution, industrial, office, retail and self-storage.
The company came up with a positive earnings surprise of 16.96% in first-quarter 2016. Moreover, analysts remains bullish on the stock with the Zacks Consensus Estimate for 2016 and 2017 surging 9.1% and 6.4%, respectively, over the past 30 days. Its dividend yield stands at 5.90%.
PS Business Parks Inc. has a market cap of $2.74 billion. This Glendale, CA-based REIT owns, acquires, develops and operates commercial real estate properties, especially multi-tenant flex, office and industrial. This gives the Zacks Rank #2 (Buy) company the ability to tap opportunities in different asset classes.
PS Business Parks not only posted a positive earnings surprise of 1.61% in the first quarter of 2016, it also boasts a growth style score of “B”. Analysts remain bullish on the stock with estimates for 2016 and 2017 moving up.
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Troubled by Residential Real Estate? Buy These REITs Instead
The continued surge in the housing market undoubtedly signal economic recovery. However, if you are an investor in the residential real estate investment trusts (REIT) category, the recent turnout of events may have raised your anxiety.
Things got worse for the residential REIT stocks that witnessed a significant sell-off over the past few days following a guidance cut for 2016 same store revenue by Equity Residential (EQR - Free Report) on Jun 1, owing to continued weakness in New York and the recent downturn in the San Francisco portfolio. (Read: Equity Residential Lowers Guidance Amid Market Weakness)
As a result, Equity Residential, which blamed new rental apartment supply for hurting rent growth, saw its share price fall 7.3% since the closing of trade on May 31. Other residential REITs like AvalonBay Communities, Inc. (AVB), Essex Property Trust Inc. (ESS) and UDR Inc. (UDR) followed suit.
Importantly, significant rent growth in the past made New York and San Francisco markets among the preferred ones for developers and landlords. So, new construction activity recently surged in these markets. But elevated supply of new units seems to have curtailed landlords’ capability to demand more rents.
Opportunity Lies Elsewhere
A downfall in the residential REITs space does not essentially mean that the scope for gains from the overall REIT industry is over. Investors of this special hybrid class can also benefit from the individual market dynamics of different asset types owned and managed by it.
Moreover, the space still looks attractive as the markets are not speculating a rate hike in June following the recent speech by Fed chief Janet Yellen, who despite sounding upbeat about U.S. economic growth, failed to give any hint on the timing of the next rate hike. This points to an extended period of low borrowing cost for the REITs. And given the low rate environment, their dividend yields also continue to look attractive.
Against this backdrop, we have handpicked the following top-ranked REITs that are expected to benefit from market fundamentals and are witnessing a surge in estimates.
Stock Picks
CoreSite Realty Corporation (COR - Free Report) with a Zacks Rank #1 (Strong Buy) provides data center products and interconnection services to telecommunication carriers, content and media entertainment providers, cloud providers, enterprise customers, financial and educational institutions, and government agencies. The company is headquartered in Denver, CO and has a market cap of $2.55 billion.
Amid growth in cloud computing, Internet of Things and big data, and an increased number of companies opting for third party IT infrastructure, data center REITs are gaining ground and experiencing a boom market. CoreSite Realty is efficiently capitalizing on this favorable environment. The company came up with a positive earnings surprise of 3.61% in the first quarter and has seen rising estimates for 2016 and 2017 over the past 30 days.
CoreSite also boasts a Growth Style score of “B”. According to our style score system, a stock with favorable Zacks Rank and Zacks Growth or Value Style Score of ‘A’ (or ‘B’) are highly desirable.
Summit Hotel Properties, Inc. (INN - Free Report) , which sports a Zacks Rank #1, is a hotel investment company. Based in Austin, TX, this company focuses on premium-branded, select-service hotels in the upscale section of the U.S. lodging industry.
Summit Hotel also posted a positive earnings surprise of 3.23% in first-quarter 2016. Also, the Zacks Consensus Estimates for 2016 and 2017 has increased 2.4% and 10.4%, respectively, over the past 30 days to $1.30 and $1.49 per share. Currently, the stock has a Value Style Score of “B” and a dividend yield of 4.44%.
W. P. Carey Inc. (WPC - Free Report) is also a Zacks Rank #1 company engaged in providing long-term sale-leaseback and build-to-suit financing for companies. Based in New York, this firm with a market cap of $6.9 billion boasts a diversified portfolio including properties from warehouse/distribution, industrial, office, retail and self-storage.
The company came up with a positive earnings surprise of 16.96% in first-quarter 2016. Moreover, analysts remains bullish on the stock with the Zacks Consensus Estimate for 2016 and 2017 surging 9.1% and 6.4%, respectively, over the past 30 days. Its dividend yield stands at 5.90%.
PS Business Parks Inc. has a market cap of $2.74 billion. This Glendale, CA-based REIT owns, acquires, develops and operates commercial real estate properties, especially multi-tenant flex, office and industrial. This gives the Zacks Rank #2 (Buy) company the ability to tap opportunities in different asset classes.
PS Business Parks not only posted a positive earnings surprise of 1.61% in the first quarter of 2016, it also boasts a growth style score of “B”. Analysts remain bullish on the stock with estimates for 2016 and 2017 moving up.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>