Real estate investment trust (REIT) stocks have been one of the most popular vehicles to invest in over the past few weeks as markets have declined. While last week broke the recent trend, it is unclear if we are in a bear market rally. As more questions surface about the market’s current direction going into the summer, another Wall Street analyst takes a position on REITs.
BMO Capital Markets recently issued some REIT-focused calls. Although these stocks have come under severe pressure over the past few months, this company is hinting that a turnaround is imminent as it adjusts its current position.
Real estate is considered to be one of the best assets to make money over time, be it through commercial or residential routes. Most investors can’t buy large swaths of real estate, but they can buy REITs that target specific real estate values. Owning a home technically makes you a real estate investor. However, home ownership does not generate income, apart from rental properties, which can be very capital intensive and time consuming.
Many investors fear that REITs will be hit hard in an environment of rising interest rates. The Federal Reserve recently hiked the federal funds rate by 50 basis points, and many are expecting similar or even larger rate hikes this month, next, and the rest of the year.
Historically, REITs have performed well in environments with rising long-term interest rates. For example, REITs have outperformed the S&P 500 in about half of the periods that government bond yields have risen, and this positive momentum has been consistent with improving underlying fundamentals.
It is important to remember that no single analyst report should be used as the sole basis for making buy or sell decisions.
Features of JBG Smith
JBG Smith Properties (NYSE: JBGS) owns, operates and invests in high growth, mixed-use properties in and around the District of Columbia. BMO Capital Markets downgraded it to Market Perform from Outperform and lowered its price target to $30 from $38. That’s still up 14% from the recent close of $26.22.
The stock has a 52-week trading range of $23.54 to $34.98 and was trading near $26 a share early Wednesday. The dividend yield is 3.5%. The stock is down about 10% year-to-date.
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Vornado Realty Trust
BMO Capital Markets downgraded Vornado Realty Trust (NYSE:VNO) to Market Perform from Outperform and lowered its price target to $40 from $52. This represents a gain of 12.5% from the last close of $35.54. Vornado’s real estate portfolio is primarily focused in New York City, but has some key assets in Chicago and San Francisco.
Vornado Realty Trust shares last traded around $35, in a 52-week trading range of $32.48 to $50.91. The dividend yield is 6.0%. Shares are down nearly 16% year-to-date.
Kilroy Realty Corp. (NYSE: KRC) is another REIT with a portfolio primarily located on the West Coast, namely in San Diego, Los Angeles and San Francisco. The Company’s portfolio is primarily focused on office space and life science space, with only a few retail units. BMO Capital Markets lowered its Outperform rating to Market Perform and lowered its price target to $70 from $84. The implied uptrend from the recent close of $61.96 is 13%.
The 52-week trading range is between $56.94 and $79.06 and shares were trading above $60 on Wednesday morning. It has a dividend yield of 3.4%. Shares are down about 9% year to date.
Essex Property Trust
Essex Property Trust Inc. (NYSE: ESS) differs slightly from the other REITs in that its primary focus is residential real estate in select West Coast markets. BMO Capital Markets’ downgrade from Outperform to Market Perform included a price target cut to $320 from $378. This represents an 11% gain from the last close of $288.69.
The stock was trading around $284 early Wednesday and has a 52-week trading range of $275.33 to $363.36. The dividend yield is 3.1%, and the stock is down 19% year to date.