3 REITS That Can Withstand Fed Rate Hikes in 2019
- By Jacob Maslow
The Federal Reserve is expected to increase interest rates this week, but that may change as stocks continue to slide. Monday's selloff saw all three major indexes fall, reducing the likelihood of an interest rate hike.
Short-term interest rate hikes have occurred for three straight quarters this year, and there's still a good chance of a rate hike after Wednesday's meeting. Projections of three rate hikes in 2019 have been lowered to two in 2019.
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The intrinsic value of EQR
REITS can be impacted heavily by rate hikes, but a few REITS that are expected to be able to withstand real estate cost and interest rate increases include:
Equity Residential
Equity Residential (EQR) has performed well in 2018, rising over 6.6% year to date. The real estate investment trust focuses on the apartment rental sector and had over 306 properties in its portfolio at the end of 2018. The portfolio includes 79,260 apartment units under the company's ownership.
Rising rental rates across the country are a bonus for the REIT, which is expected to withstand headwinds from rising interest rates.
The REIT focuses on high-density suburban markets and urban areas, with properties in New York, Boston, Denver, California, Washington D.C., San Francisco and Seattle.
Blackstone Mortgage Trust
Mortgage REITS are a major concern when interest rates rise, but Blackstone (BXMT) focuses on commercial mortgages, which are still a solid investment. The trust has been able to withstand all four interest rate hikes in 2018, rising over 5% year to date.
Blackstone offers a 7% interest rate, which is a good option for investors seeking income-generating investments.
The trust beat earnings and revenue estimates in the most recent quarter, posting an 11.94% increase in earnings on an 8.34% increase in revenue.
A key factor in Blackstone's ability to withstand headwinds is interest rates are primarily floating. As interest rates rise, so do the loan payments the company receives.
HCP Inc.
HCP (HCP) is a REIT that focuses on the health care industry. Year to date, the stock has risen over 7.9% and offers a 5.16% dividend yield. Health care remains a safe bet for investors as the country's population continues to live longer.
The REIT owns 35 senior housing communities and sold off 11 housing communities in the last quarter to generate $76 million in revenue. Growth remains a concern for the company, yet the prospects for long-term growth remain positive.
A focus on reducing debt and restructuring to improve diversity will help HCP withstand headwinds in 2019.
Disclosure: The author does not own any stakes in the listed equities.
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This article first appeared on GuruFocus.
Warning! GuruFocus has detected 6 Warning Sign with EQR. Click here to check it out.
The intrinsic value of EQR
