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REIT ETFs Worth a Look On Bullish SPG, VTR Earnings - ETF News And Commentary

Zacks Equity Research

With the U.S. economy expanding at a steady clip in the second half and bond yields affably low despite the looming Fed meeting and the prospect of interest rate hike, REITs – known for their high dividend yields – look to be one of the most promising sectors.


While this rate-sensitive corner of the investing world face a bump when the Fed enacts a lift-off, a healthy economy and busy activities should back the REIT space over the longer term (read: Can REIT ETFs Withstand Higher Rates?).


This was more so given the decent earnings profile. On July 24, two REIT companies Simon Property Group Inc. (SPG) and Ventas Inc.’s (VTR) reported impressive earnings before the bell and gave cues for an uptrend in the REIT space (read: REIT ETFs for Income and Diversification).


Inside Simon’s Q2 Earnings


The retail REIT Simon Property’s second-quarter 2015 funds from operations (FFO) of $2.63 per share breezed past the Zacks Consensus Estimate of $2.35 and the prior-year quarter figure of $2.16 per share. Growth in comparable net operating income led the bottom line outperformance.


Total revenue in the quarter increased 14.1% year over year to $1.34 billion. Further, it sailed past the Zacks Consensus Estimate of $1.21 billion. Total sales per square feet moved up 2% despite a 40 bps decline in occupancy rate.


The guidance was also upbeat as Simon Property ticked up both the lower and upper ends of its 2015 FFO per share guidance to $10.02–$10.07 from $9.65 to $9.75 per share. This is the second time; the company has lifted its 2015 FFO per share guidance. Prior to the Q2 earnings release, the Zacks Consensus Estimate for the same was pegged at $9.77 which spells another around of optimism around the stock.


Simultaneously with its earnings release, Simon Property declared a quarterly dividend of $1.55 per share indicating a 3.3% sequential and 19.2% year-over-year increase. The latest dividend will be paid on Aug 31, 2015 to shareholders of record as of Aug 17.


The enthusiastic numbers have spread bullishness not only on this REIT giant but also in the broad space. SPG shares added about 1.8% on Friday after this decent announcement.


Ventas Q2 Earnings in Detail


The health care REIT Ventas’ second-quarter 2015 normalized funds from operations of $1.18 per share came in 6 cents above the Zacks Consensus Estimate of $1.12. The figure comfortably outdid the year-ago quarter figure of $1.16. Total revenue during the quarter totaled $891.3 million, up 18.6% year over year and exceeded the Zacks Consensus Estimate of $863 million.


Like Simon, Ventas also raised its guidance. The company upped its 2015 normalized FFO per share outlook to $4.70–$4.76 from $4.67–$4.75 guided earlier. The new outlook marks 5–6% growth in normalized FFO per share from the 2014 level. Prior to the release, the Zacks Consensus Estimate was $4.74 for 2015.


Thanks to solid earnings, the stock gained over 2.7% in the key trading session of Friday.


ETF Impact


The warmth was also felt in the ETF world. REIT ETFs invest considerably in those two stocks with SPG (especially) having widespread presence in the ETF universe. At the time of writing, Simon has a Zacks Rank #3 (Hold) and Ventas has a Zacks Rank #2 (Buy). Let’s discuss SPG and VTR-heavy ETF opportunities that investors might intend to tap following solid earnings (see all Real Estate ETFs here).


ETFs in Watch


Schwab US REIT ETF (SCHH) a Zacks #3 (Hold) rated ETF, invests 10% of its $1.52 billion assets in Simon. The stock is the fund’s top holding. Ventas is the fund’s sixth holding and occupies 3.77% of the basket. The fund charges 7 bps in fees and gained about 0.5% in the key trading session of July 24.


SPDR Dow Jones REIT ETF (RWR) invests 9.86% of its $3 billion basket in the stock under consideration. Simon takes the top position while Ventus takes the sixth position with about 3.68% exposure. This Zacks #3 (Hold) rated ETF charges 25 bps in fees and added 0.5% on July 24.


iShares Real Estate 50 ETF (FTY) invests 9.33% of its $83.5 million assets in SPG, once again the fund’s first holding. Ventas, the eighth holding of the find, takes 3.5% of the portfolio. The product charges 48 bps in fees and has a Zacks ETF Rank #3. The fund advanced about 0.4% on the day the duo reported Q2 earnings. Investors can also play the optimism in SPG via ETFs like Wilshire US REIT ETF (WREI) and Vanguard REIT ETF (VNQ).


Let’s also mention an ETF which is heavy on VTR. The $262 million-iShares Residential Real Estate Capped ETF (REZ), puts 7.68% of its weight in VTR, the fifth holding of the fund. Notably, the fund has no exposure in SPG. REZ charges 48 bps in fees and added about 0.6% on July 24.


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SIMON PROPERTY (SPG): Free Stock Analysis Report
 
VENTAS INC (VTR): Free Stock Analysis Report
 
SCHWAB-US REIT (SCHH): ETF Research Reports
 
SPDR-DJ W REIT (RWR): ETF Research Reports
 
ISHARS-RE 50 (FTY): ETF Research Reports
 
WILSHR-US REIT (WREI): ETF Research Reports
 
VIPERS-REIT (VNQ): ETF Research Reports
 
ISHARS-RES RE (REZ): ETF Research Reports
 
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