4 Top REITs Buoying Investors' Optimism This Earnings Season

It is natural for investors to be lured by profits and surprises of companies that have already released their quarterly numbers by far in the current reporting cycle. However, instead of accumulating the stock later, investing in the ones that are poised for a beat can be far more rewarding. This is because earnings beat essentially serves as a catalyst, boosts investors’ confidence in a stock and results in further price appreciation.

And 2019 was a good year for REIT investors because apart from providing long-term growth benefits, recurring income was strong, which made it stand apart particularly in the current low-rate environment. The total return for the FTSE NAREIT All REIT Index was 28.07% in 2019 and dividend yield amounted to 4.06% compared with the S&P 500’s 1.85%.

The Fed’s three interest rate cuts in 2019, following the hike in 2018, did bring in good news for REIT stocks, but individual market dynamics played a crucial role in determining the companies’ performance. Particularly, the macro-economic conditions have been encouraging for a number of asset classes, benefiting both commercial and residential REITs. Moreover, in the fourth quarter, resilient economic activity, healthy job-market environment, low interest rates are anticipated to have driven REITs’ performance during this period.

Take for example the industrial real estate market, which is likely to have witnessed solid fundamentals in the quarter. In fact, with growing e-commerce penetration and companies’ immense efforts to improve supply-chain efficiencies, the demand for logistics infrastructure and efficient distribution networks has been on the rise, thereby supporting fundamentals of the industrial and logistics market.

In addition, the latest figures from real estate technology and analytics firm RealPage, Inc. (RP) suggest that following a robust prime leasing season in 2019, the U.S. apartment rental market put up a decent show in the December-end quarter, despite demand for apartments generally slowing down during the colder months as renters usually prefer less to move in winters. Occupancy at the end of fourth-quarter 2019 remained as high as 95.8%, reflecting 40 basis points (bps) expansion, year on year. Moreover, rents for new-resident leases were up 2.8% in 2019, hovering around the 3% level that the apartment market has been witnessing since late 2016.

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