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4 Top REITs in Focus Amid Fed's Next Rate-Cut Speculations
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The Federal Reserve is once again anticipated to lower its benchmark overnight lending rate by a quarter point at the FOMC meeting that begins today. In recent times, the Fed Chair Jerome Powell has widely discussed the central bank’s commitment to sustain the U.S. economic expansion, signaling another rate cut but waving off any impending recession fears.
The U.S. job market and consumer spending have been holding up well. However, trade tensions between Washington and Beijing, anticipated Brexit-related uncertainties, together with a broader global slowdown, have been bothering the U.S. economy.
Now, the recent-appeasing messages between the United States and China suggest some relief from trade tensions. Nonetheless, the Fed has been under mounting pressure to pull the trigger on economic stimuli after the ECB announced its latest decision to ease monetary policies. Remarkably, President Trump too has left no stone unturned in demanding lower rates.
However, latest projections indicate that the circumstance for continued cuts has been losing ground. Per the CME FedWatch tool, while there is a 63.5% chance of the central bank lowering rates by 25 basis points, there’s a 36.5% probability of the Fed staying put. This probability of the Fed keeping the rate unchanged was nil a month ago and only 7.7% a week before.
The current lesser-dovish mood in the market, however, is undoubtedly backed by healthy economic data. Indications of easing of U.S.-China trade tensions, firming of the inflation trend and the recent surge in energy prices are other factors contributing to this. These might help Powell in repeating his rhetoric about the rate cut being a “mid-cycle adjustment” rather than a longer easing one. Thus, investors will closely analyse Powell’s remarks and the Fed’s statement to form an opinion on the economic situation and expectations of future economic activities.
Whatever be the case, either way, REITs stand to benefit. Any rate cut, even a slight one, is good news for the rate-sensitive REIT industry. This is because REITs’ dependence on debt for business keeps investors optimistic about their performance in case of a rate cut due to lower borrowing costs. Moreover, REITs are often treated as bond substitutes for their high-dividend paying nature. Particularly, government regulations mandate REITs to disburse at least 90% of their taxable income in the form of dividends to shareholders each year.
Also, when an economy is going strong, the real estate sector’s prospects get a boost. This is because a healthy economy entails more economic activities and empowers people to spend more. Demand for real estate shoots up, occupancy goes up, and landlords get more power to command higher rents. Therefore, REITs’ earnings, cash flow and dividend gain strength. These apart, over the years, REITs have fortified their balance sheets, raising equity capital and lowering interest rate exposures.
Further, the REIT sector has emerged as one of the most brilliant performers this year, with total returns of the FTSE Nareit All REITs Index rallying 25.15% since the beginning of the year through Sep 16, outpacing the S&P 500 which gained 21.36% during the same period.
Our Choices
Nevertheless, not all REITs are equally poised to excel as the underlying asset category and location of properties play a vital role in determining their performance. Here we have handpicked four REIT stocks that flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have been witnessing positive estimate revisions. In addition, their underlying asset categories display strength.
Arbor Realty Trust Inc. (ABR - Free Report) invests in a diversified portfolio of structured finance assets in the multi-family and commercial real estate markets. The company operates in two segments, Structured Business and Agency Business. The stock projects funds from operations (FFO) per share growth of 5% for the current year. The Zacks Consensus Estimate for the current-year FFO per share moved up 10.4%, over the last 30 days. Moreover, it has a dividend yield of 9.04%.
Based in Newton, MA, Industrial Logistics Properties Trust (ILPT - Free Report) is focused on the ownership and leasing of industrial and logistics properties, primarily in the United States. Healthy fundamentals of the industrial and logistics market continue to support this REIT’s growth, the estimated FFO per share growth rate for the ongoing year being 9.94%. Additionally, it has a dividend yield of 6.01%.
Americold Realty Trust (COLD - Free Report) is the world's largest publicly-traded REIT focused on the ownership, operation and development of temperature-controlled warehouses. The company’s operations are spread out in the United States, Australia, New Zealand, Canada and Argentina. Americold's facilities are an integral component of the supply chain, connecting food producers, processors, distributors and retailers to consumers. The company is likely to benefit from the current global low interest-rate scenario. The Zacks Consensus Estimate for its 2019 FFO per share moved 6% north in 60 days’ time. It has a dividend yield of 2.21%.
Outfront Media Inc. (OUT - Free Report) is a lessor of advertising space on out-of-home advertising structures and sites across North America. The company has a long-term expected FFO per share growth rate of 8.9%. The Zacks Consensus Estimate for the ongoing year’s FFO per share moved 3.3% upward, over the last 60 days. The stock has a dividend yield of 5.19%.
Here’s how the above stocks have performed in the year so far.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
5 Stocks Set to Double
Zacks experts released their picks to gain +100% or more in 2020. One is a famous cutting-edge food company that is “hiding in plain sight.” Swamped with competitors and ignored by Wall Street, its stock price floundered. Now, suddenly, it acquired a company that gives it an advantage none of its peers have.
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4 Top REITs in Focus Amid Fed's Next Rate-Cut Speculations
The Federal Reserve is once again anticipated to lower its benchmark overnight lending rate by a quarter point at the FOMC meeting that begins today. In recent times, the Fed Chair Jerome Powell has widely discussed the central bank’s commitment to sustain the U.S. economic expansion, signaling another rate cut but waving off any impending recession fears.
The U.S. job market and consumer spending have been holding up well. However, trade tensions between Washington and Beijing, anticipated Brexit-related uncertainties, together with a broader global slowdown, have been bothering the U.S. economy.
Now, the recent-appeasing messages between the United States and China suggest some relief from trade tensions. Nonetheless, the Fed has been under mounting pressure to pull the trigger on economic stimuli after the ECB announced its latest decision to ease monetary policies. Remarkably, President Trump too has left no stone unturned in demanding lower rates.
However, latest projections indicate that the circumstance for continued cuts has been losing ground. Per the CME FedWatch tool, while there is a 63.5% chance of the central bank lowering rates by 25 basis points, there’s a 36.5% probability of the Fed staying put. This probability of the Fed keeping the rate unchanged was nil a month ago and only 7.7% a week before.
The current lesser-dovish mood in the market, however, is undoubtedly backed by healthy economic data. Indications of easing of U.S.-China trade tensions, firming of the inflation trend and the recent surge in energy prices are other factors contributing to this. These might help Powell in repeating his rhetoric about the rate cut being a “mid-cycle adjustment” rather than a longer easing one. Thus, investors will closely analyse Powell’s remarks and the Fed’s statement to form an opinion on the economic situation and expectations of future economic activities.
Whatever be the case, either way, REITs stand to benefit. Any rate cut, even a slight one, is good news for the rate-sensitive REIT industry. This is because REITs’ dependence on debt for business keeps investors optimistic about their performance in case of a rate cut due to lower borrowing costs. Moreover, REITs are often treated as bond substitutes for their high-dividend paying nature. Particularly, government regulations mandate REITs to disburse at least 90% of their taxable income in the form of dividends to shareholders each year.
Also, when an economy is going strong, the real estate sector’s prospects get a boost. This is because a healthy economy entails more economic activities and empowers people to spend more. Demand for real estate shoots up, occupancy goes up, and landlords get more power to command higher rents. Therefore, REITs’ earnings, cash flow and dividend gain strength. These apart, over the years, REITs have fortified their balance sheets, raising equity capital and lowering interest rate exposures.
Further, the REIT sector has emerged as one of the most brilliant performers this year, with total returns of the FTSE Nareit All REITs Index rallying 25.15% since the beginning of the year through Sep 16, outpacing the S&P 500 which gained 21.36% during the same period.
Our Choices
Nevertheless, not all REITs are equally poised to excel as the underlying asset category and location of properties play a vital role in determining their performance. Here we have handpicked four REIT stocks that flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have been witnessing positive estimate revisions. In addition, their underlying asset categories display strength.
Arbor Realty Trust Inc. (ABR - Free Report) invests in a diversified portfolio of structured finance assets in the multi-family and commercial real estate markets. The company operates in two segments, Structured Business and Agency Business. The stock projects funds from operations (FFO) per share growth of 5% for the current year. The Zacks Consensus Estimate for the current-year FFO per share moved up 10.4%, over the last 30 days. Moreover, it has a dividend yield of 9.04%.
Based in Newton, MA, Industrial Logistics Properties Trust (ILPT - Free Report) is focused on the ownership and leasing of industrial and logistics properties, primarily in the United States. Healthy fundamentals of the industrial and logistics market continue to support this REIT’s growth, the estimated FFO per share growth rate for the ongoing year being 9.94%. Additionally, it has a dividend yield of 6.01%.
Americold Realty Trust (COLD - Free Report) is the world's largest publicly-traded REIT focused on the ownership, operation and development of temperature-controlled warehouses. The company’s operations are spread out in the United States, Australia, New Zealand, Canada and Argentina. Americold's facilities are an integral component of the supply chain, connecting food producers, processors, distributors and retailers to consumers. The company is likely to benefit from the current global low interest-rate scenario. The Zacks Consensus Estimate for its 2019 FFO per share moved 6% north in 60 days’ time. It has a dividend yield of 2.21%.
Outfront Media Inc. (OUT - Free Report) is a lessor of advertising space on out-of-home advertising structures and sites across North America. The company has a long-term expected FFO per share growth rate of 8.9%. The Zacks Consensus Estimate for the ongoing year’s FFO per share moved 3.3% upward, over the last 60 days. The stock has a dividend yield of 5.19%.
Here’s how the above stocks have performed in the year so far.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
5 Stocks Set to Double
Zacks experts released their picks to gain +100% or more in 2020. One is a famous cutting-edge food company that is “hiding in plain sight.” Swamped with competitors and ignored by Wall Street, its stock price floundered. Now, suddenly, it acquired a company that gives it an advantage none of its peers have.
Today, see all 5 stocks with extreme growth potential >>