Zacks Industry Outlook Highlights: Prime Group, General Growth Properties, First Industrial Realty Trust, Cousins Properties and Health Care REIT
CHICAGO, Oct. 16, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the REITS (part 1), including Prime Group Inc. (NYSE:WPG-Free Report), General Growth Properties, Inc (NYSE:GGP-Free Report), First Industrial Realty Trust Inc. (NYSE:FR-Free Report), Cousins Properties Incorporated (NYSE:CUZ-Free Report) and Health Care REIT, Inc. (NYSE:HCN-Free Report).
Industry: REITS (part 1)
Link: http://www.zacks.com/commentary/34873/reits-build-hopes-on-low-interest-rate-environment
Real estate investment trust (REIT) investors who sulked last month due to weak performance should cheer up now. This is because, contrary to consensus expectations, benchmark treasury yields have coming down -- instead of going to the 3% level, 10-year treasury yields now appear on course to go below the 2% level.
On top of this, we knew that the Fed was very cautious and will likely be even more so given the global growth worries. All of this has been a godsend for the interest rate sensitive REIT industry.
While the interest rate issue has hogged the limelight in recent weeks, one should not forget that the shareholders of this special hybrid class can also gain from the individual market dynamics of different asset types (malls, shopping centers, apartments, offices, hotels, industrial or other facilities) owned and managed by the REITs.
The low interest rate environment, though not perpetual, should lead to more consumption spending. Consequently, majority of these asset types are expected to benefit.
As the worth of an REIT stock depends much on the asset type in which it invests as well as on the local economy, a careful approach needs to be undertaken in selecting the stocks for your portfolio.
In this environment, adding stocks like Washington Prime Group Inc. (NYSE:WPG-Free Report), General Growth Properties, Inc (NYSE:GGP-Free Report), First Industrial Realty Trust Inc. (NYSE:FR-Free Report), Cousins Properties Incorporated (NYSE:CUZ-Free Report), Health Care REIT, Inc. (NYSE:HCN-Free Report), and many others with favorable Zacks Ranks may be a prudent decision.
Statistics Not Too Discouraging
The varying perditions for the timing of interest rate hike resulted in hiccups for the REITs. But the battered September figures could not eat away all the returns that this industry has reaped since January.
As per the National Association of Real Estate Investment Trusts (NAREIT), the FTSE NAREIT All REITs Index dipped 5.6% versus the 1.4% decline in the S&P 500 Index. But in the January to September period, the FTSE NAREIT All REITs Index gained 13.1% against the 8.3% gain for the S&P 500.
And despite global worries, economic indicators like the jobs report and Institute of Supply Management (ISM) numbers recently indicated ongoing improvement albeit at the slow pace.
This economic betterment will lead to improved disposable income, higher occupancy levels and rent, rise in property valuation, and finally improvement in total income and dividend level.
Dividends Remain Key Attraction
Along with the capital appreciation, yield-hungry investors still have a large appetite for these stocks as the U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends.
As of Aug 29, the dividend yield of the FTSE NAREIT All REITs Index was 3.98%. The yield of the FTSE NAREIT All Equity REITs Index was 3.47% while the FTSE NAREIT Mortgage REITs Index yielded 10.01%. Clearly, the REITs continued to offer solid yields and outpaced the 1.99% dividend yield offered by the S&P 500 as of that date.
Capital Access
REITs have also been much active in the capital market this year and this gives cues of a rise in investor's confidence in this sector and their willingness to pour money into it. As of Aug 29, REITs raised $41.3 billion in initial, debt and equity capital offerings in 2014.
Last year too was notable with listed REITs raising a total of $76.96 billion compared with $73.33 billion in the prior year. The increase was backed by a solid IPO market.
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