4 REITs Poised To Emerge Winners This Earnings Season

As we stand in one of the busiest weeks of the current reporting cycle, investors can be lured by profits of companies that have already released their quarterly figures. But rather than adding the stock later to your portfolio, accumulating the ones that are yet to report and poised to beat estimates, can generate higher gains. This is because an earnings beat usually serves as a catalyst, raising investors’ confidence in a stock and resulting in price appreciation.

And REITs are now back in limelight as after a soft performance in 2018, the sector emerged as a solid winner this January, with the FTSE Nareit ALL REITs Index gaining 11.42%, outperforming the S&P 500’s rally of 8.01%.

Obviously, the pause mode adopted by the Federal Reserve toward rate hike has garnered enthusiasm for this sector as REITs are a preferred choice among investors owing to their high-dividend paying nature. Moreover, an unchanged decision with respect to rate comes as a relief because REITs usually have a high dependence on debt.

Further, prospects of a number of underlying asset categories of REITs are getting a boost amid healthy economy, job-market gains and high consumer confidence that are translating into greater demand for real estate and resulting in higher occupancy levels.

Take for example the industrial real estate category which is exhibiting solid strength amid e-commerce boom and supply-chain strategy transformations. In fact, per a study by the commercial real estate services firm — CBRE Group (CBRE - Free Report) — availability fell for 34 straight quarters to 7.0% for the U.S. industrial market in Q4, denoting the lowest point since 2000. Additionally, with demand surpassing new supply, net asking rents increased 2.2% in Q4 to $7.37 per square feet — marking the highest level since 1989, per a CBRE report.

In the office sector too, the fourth-quarter vacancy rate declined to its lowest level in 11 years, shrinking 10 basis points (bps) to 12.6%, according to a study by CBRE Group. Further, job growth boosted annual net absorption to 58.3 million square feet of space — the highest since 2015.

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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.

Disclosure: Officers, ...

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