Low Rates = High Returns for These 4 REITs

Corrections in the market and particularly in the real estate investment trust (REIT) space in recent months left investors in the lurch. But the so-called “optimism” induced by the Fed with a no rate hike decision last month, seems to have eased their nerves somewhat.

Then, the recent spate of “bad data,” ranging from weaker job additions in September, decline in the counts in the two ISM surveys and the swelling up of the U.S. trade deficit in August added further cheer to REIT space.

In fact, the more the incoming economic data fall short of estimates, the higher is the probability of a rate hike shift to the next year. According to the CME FedWatch tool, October is almost off the table and chances of a December hike are trending low.

Hence, with rates expected to remain ultra low for an extended period, the time is now apt for bracing up your portfolio with high yielders like REITs that benefit from a low rate environment.

Their dependence on debt for acquisitions, development and redevelopment activities make them gainers when rate remains low. Also, their dividend yield grabs investors’ attention more than yields on fixed income and money market accounts in times like this.

The Zacks Advantage

For choosing stocks from a long lineup of listed REITs, the Zacks Industry Rank methodology is quite helpful. This methodology ranks all of the 260+ industries based on the earnings outlook for the constituent companies in each industry. And surprisingly, we found that REIT Equity Trust – Retail is currently ranked #21 and Residential REIT is at #26. (To learn more visit: About Zacks Industry Rank)

Being an occupier in the top 30 slot of that ranking list, these categories of REITs enjoy an overall solid positive outlook for the near term.

And Why Not?

With the holiday season almost knocking at the door, how can the retail REITs stay behind? In fact, for the retailers ardently try to drive traffic as the holiday season accounts for a notable part of their full-year revenues.

In fact, retailers have increased the number of store openings for the next two years, per an article from the National Real Estate Investor site that cited an August report from RBC Capital Markets. The study reveals 42,554 planned store openings for the next year and 79,655 for the next two years.

The figures reflect year-to-date hike of 4.1% and 4.2%, respectively, for the 12-month period and 24-month period. This strongly implies that spaces at the malls and shopping centers are much in demand, giving retail landlords enough reasons to rejoice.

For residential REITs too, the latest spate of data on rent and occupancy forecast quite justifies the position on the rank list. According to the Axiometrics’ apartment market research, the final 2015 effective rent growth rate is expected to be 5.1% and occupancy to end the year is estimated at 95.0%. That well reflects the strength of the market.

Stocks to Consider

Therefore, from our chosen industry duo, we screened stocks with a favorable Zacks Rank. A Zacks Rank of #1 (Strong Buy) or #2 (Buy) indicates high chances of outperforming the market over the next 1–3 months. Along with high ranks, we looked for stocks with good growth prospects as well as a decent dividend yield.

Here are 4 such stocks for your consideration:

Simon Property Group Inc. SPG: Headquartered in Indianapolis, IN, Simon Property is a leading publicly traded retail REIT in the U.S. Its diverse exposure to various retail assets, adoption of omni-channel strategies, portfolio restructuring and robust balance sheet bode well.

This Zacks Rank #2 stock has a dividend yield of 3.23% and its projected EPS growth rate is 12.83% against the industry average of 6.31%. It also has an Earnings ESP of 0.4% that increases its likelihood of an earnings beat in the upcoming quarter.

The Macerich Company MAC: Based in Santa Monica, CA, Macerich is an REIT engaged in the acquisition, ownership, redevelopment, management and leasing of regional shopping centers throughout the United States.

This Zacks Rank #2 stock has a dividend yield of 3.31% and its projected EPS growth rate is 9.25% versus the industry average of 6.31%.

Armada Hoffler Properties, Inc. AHH: This REIT is engaged in developing, building, owning and managing office, retail and multifamily properties primarily in the United States. Its properties are situated in Virginia and North Carolina. Armada Hoffler Properties, Inc. is based in Virginia Beach, United States.

This Zacks Rank #2 stock has a dividend yield of 6.79% and its projected sales growth rate is 25.02%, well ahead of the industry average of 9.20%.

AvalonBay Communities Inc. AVB: This residential REIT primarily focuses on developing multifamily apartment communities in high barrier-to-entry regions of the U.S. Amid favorable demographics and healthy demand along its markets, AvalonBay is well poised for growth given its solid portfolio of high quality assets in premium locations.

This Zacks Rank #2 stock has a dividend yield of 2.85% and its projected earnings growth rate is 10.19% above the industry average of 8.39%.
 
Bottom Line

So as long as the rates remain low, REITs are expected to enjoy investors’ favor. But together with their fundamental strength and ability to boost shareholder value, these REITs stand out.

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AVALONBAY CMMTY (AVB): Free Stock Analysis Report
 
SIMON PROPERTY (SPG): Free Stock Analysis Report
 
MACERICH CO (MAC): Free Stock Analysis Report
 
ARMADA HOFFLER (AHH): Free Stock Analysis Report
 
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