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5 REITs to Scoop Gains After a Stellar U.S. Jobs Report

Moumita Chattopadhyay

Wall Street’s turbulent entry into 2019 amid volatility in oil prices, trade-war tensions and a weakening global economy had triggered a fear of recession for the near term. On top of that, the recent government shutdown further aggravated these woes. However, the latest jobs report suggests that the second longest economic expansion in the history of the United States is not fizzing out any time soon and has decent room for growth.

This is because the report reveals the addition of 312,000 jobs in non-farm payrolls in December 2018 by the U.S. economy, marking a 10-month high and well ahead of the market’s anticipation of 176,000. Adding to the good news, it also notes a 3.2% rise in average hourly earnings in 2018 from the prior year — the highest full-year gain in a decade — reflecting the employment force’s bargaining power.

Meanwhile, the unemployment rate ticked up to 3.9% last December from the prior-month level of 3.7%, but labor-force participation rate increased and the number of people who left their jobs voluntarily moved up, signaling their enhanced confidence. The hiring numbers for October and November were also revised upward.

Obviously an improving economy and better job market have instilled confidence among consumers of their well-being, buoying the spending tendency. This was evident from the 5.1% year-over-year increase in retail sales this holiday season, per an analysis circulated after Christmas by MasterCard — highlighting the strongest in six years.

Added to this is the Fed Chair’s assurance to adopt a “patient” approach in raising rates in tandem with the evolution of the economy, rather than being too aggressive in its tightening measures. The icing on the cake is the resumption of trade talks between the United States and China, which might further allay fears of a slowdown and provide relief to investors.

Therefore, with economic indicators still holding strong and market dynamics of individual asset categories playing a pivotal role in determining REITs’ operating performance, there are scopes to excel. This is because growth in economy eventually translates into elevated demand for real estate, higher occupancy levels and more power for landlords demand increased rents.

And why not? A fatter purse gives tenants more power to demand real estate space and shell out for higher rents, leading to a boost in REITs’ earnings, cash flow and dividend.

Furthermore, REITs have opportunistically used the low-rate environment to make their financials more flexible, which is encouraging down the line for operational efficiencies. Additionally, their dividend payouts offer refuge to investors when volatility sets in and investors resort to income investing.



 

Our Choices

So, here we have handpicked five REITs that have having solid fundamentals, are poised to benefit from an improving economy and job-market gains, as well as have decent dividend yield. Moreover, these REITs hold a favorable Zacks Rank, which indicates higher chances of market outperformance over the next one-three months. These stocks are witnessing upward estimate revisions too reflecting analysts’ positive view on these stocks.

New York-based Global Net Lease, Inc. GNL focuses on acquisition and management of industrial and office properties leased for the long term to quality corporate tenants in select markets in the United States and Europe. The stock flaunts a Zacks Rank #1 (Strong Buy) and has a dividend yield of 11.58%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, its estimate revision activities have been decent, with the first-quarter 2019 funds from operations (FFO) per share estimate moving 5.8% north to 55 cents, over the last 60 days.

Great Neck, NY-based One Liberty Properties, Inc. OLP is engaged in acquisition, ownership and management of a geographically diversified portfolio, comprising mainly industrial, retail, restaurant, health and fitness, and theater properties. Several of these properties are subject to long-term net leases and will likely benefit from improving economy and job-market strength. The stock sports a Zacks Rank of 1 and has a dividend yield of 7.35%. The stock’s Zacks Consensus Estimate for 2019 FFO per share has been revised 1.4% upward to $2.17, over the last 60 days.

Located in Buffalo, NY, Life Storage, Inc. LSI is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self-storage facilities, and serves both residential and commercial storage customers. Notably, the self-storage asset category is basically need-based and recession-resilient in nature. Additionally, the self-storage industry is likely to continue experiencing solid demand, backed by favorable demographic changes. Further, this Zacks #2 Ranked stock has a dividend yield of 4.42%. Moreover, the Zacks Consensus Estimate for its 2019 FFO per share moved 0.9% north over the last 60 days to $5.64.

Hunt Valley, MD-based Omega Healthcare Investors, Inc. OHI invests in the long-term healthcare industry, mainly in skilled nursing (SNF) and assisted living facilities. The company is expected to ride on growth curve, given its focus on accretive buyouts this year, after closing the sale of most of its assets and repositioning itself in 2018. (Read more: Omega Healthcare to Buy MedEquities Realty in $600M Deal)

Omega Healthcare carries a Zacks Rank of 2 and has a dividend yield of 7.54%. Also, for 2019, PS Business Parks’ Zacks Consensus Estimate for FFO per share moved up 0.6% to $3.14, over the past two months.

Glendale, CA-based PS Business Parks Inc. PSB is into ownership, acquisition, development and operation of commercial real estate properties, especially multi-tenant industrial, flex and office space. The company is poised to excel as the industrial real estate market is witnessing improving fundamentals amid growth of e-commerce business and supply-chain strategy transformations. It carries a Zacks Rank of 2 and has a dividend yield of 3.23%. Also, for 2019, PS Business Parks’ Zacks Consensus Estimate for FFO per share inched up 0.5% to $6.58 in two months’ time.

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.

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