JPMorgan: REITs 'Set Up Well In This Environment'

The Thesis

Even though S&P 500 EPS growth estimates have fallen significantly from a year ago, REIT estimates have remained mostly unchanged, Mueller said in the note. (See his track record here.) 

“We believe REIT stocks are set up well in this environment, as earnings growth should remain stable into 2020, driven by commercial real estate fundamentals that are moderating a little, but lower capital costs afford companies the ability to drive growth through accretive investments,” the analyst said. 

Looking to 2020, Mueller said he expects that earnings stability to continue even if the broader market deteriorates. The combination of falling interest rates and rising share prices has sent REIT cost of capital to historical lows.

Still, within the REIT group, Mueller said he is most bullish on lease and health care, tech, residential and industrial REITs. He is most bearish on office, retail and hotel REITs.

Benzinga’s Take

Real estate is an excellent source of diversification at any stage in the market cycle. Given the favorable landscape for REITs, the rise in macroeconomic uncertainty and the high yields of many top REIT names, they are looking particularly appealing heading into 2020.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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