Interest rates rose again in December and likely will go higher when the Federal Reserve meets at the end of January with another 25- or 50-basis-point hike. That has been one of the major headwinds for stocks over the past year. It has been especially difficult for real estate investment trusts (REITs), which are vulnerable to rising rates. REITs were hammered last year, but with the Fed closing in on the end of the rate hike cycle, and interest rates across the curve falling, a change may be coming fast for 2023.
The team at Truist Securities is positive on the segment for 2023, noting that they feel that REITs can outperform the broader markets this year. They cite attractive valuations, especially when compared to the broader equity market and private real estate holdings. They also pointed to a forward-sloping interest rate curve later this year, as well as earnings growth that should be in line with the S&P 500, as positives for the beleaguered industry.
Truist Securities has 15 top companies as “best ideas.” Triple net lease companies (the tenant pays all expenses connected to the property) are high on the list, along with industrial names and gaming. The following seven top companies pay among the highest yields, and their shares are Buy rated and look like very timely ideas now. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Brixmor Property Group
This is among the higher-yielding REITs in the group and offers a solid total return proposition for investors. Brixmor Property Group Inc. (NYSE: BRX) owns and operates a high-quality, national portfolio of open-air shopping centers. Its 395 retail centers include about 69 million square feet of prime retail space in established trade areas.
The company strives to own and operate shopping centers that reflect Brixmor’s vision “to be the center of the communities we serve” and are home to a diverse mix of thriving national, regional and local retailers. Brixmor is a real estate partner to approximately 5,000 retailers, including TJX, Kroger, Publix Super Markets, Walmart, Ross Stores and L.A. Fitness.
Shareholders receive a 4.56% distribution. The Truist Securities target price is $26, and the consensus target is $24.60. The shares closed on Thursday at $22.29.
Equity Residential
This apartment REIT owns properties in high-growth U.S. cities. Equity Residential Inc. (NYSE: EQR) is an S&P 500 company focused on the acquisition, development and management of high-quality apartment properties in top U.S. growth markets in and around dynamic cities that attract high-quality long-term renters.
Equity Residential owns or has investments in 305 properties, consisting of 78,568 apartment units located in Boston, New York, the District of Columbia, Seattle, San Francisco, southern California and Denver.
Investors receive a 4.07% yield. Truist Securities recently upgraded Equity Residential stock and set a $68 price target. The consensus target is $68.10, and the stock closed on Thursday at $60.71.
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