Analysts Are Upgrading These 5 REIT Stocks

REIT stocks have seen volatility over the past several months amid elevated interest rates and headwinds in the residential and commercial real estate markets. The S&P Global REIT is down 3.9% this year, while the Real Estate Select Sector SPDR Fund XLRE has lost about 5% in value. Speaking to CNBC recently, Morgan Stanley’s Ron Kamdem mentioned that "marginal" interest rate cuts this year would not be sufficient to trigger growth in the sector. However, the analyst believes secular tailwinds like technology and demand growth could prompt renewed investor interest in the sector. 

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Investors are looking beyond traditional REIT segments like office and retail to new opportunities in data centers, senior housing, and cold storage. A real estate investment management company, CenterSquare, reports that office REITs account for just 4% of the total industry, while alternative sectors contribute 61% of the share.

Despite volatility in the broader REIT industry, some quality REIT stocks are receiving attention from Wall Street analysts. Let's examine the top five REIT stocks recently upgraded by notable analysts.

Independence Realty Trust IRT

Philadelphia, Pennsylvania-based multifamily apartment properties REIT Independence Realty Trust Inc IRT has received upgrades from Wall Street. Investment research firm Hedgeye recently started covering the stock as a new long idea, predicting that the stock price can grow to a "low-to-mid" $20/share range. Hedgeye analyst Rob Simone described the stock as "underrated" and a "must-own" for the long term. 

Independence Realty Trust has a 3.4% dividend yield as of July 8. During the first quarter, the company's occupancy was 95%, up 0.9% year over year. Net operating income in the quarter increased by 2.4% year over year.

The stock has gained about 20% so far this year.

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Americold Realty Trust COLD

Atlanta-based Americold Realty Trust Inc COLD provides cold storage facilities and temperature-controlled supply chain solutions. Earlier this month, Wolfe Research upgraded the stock to Outperform from Peer Perform, citing anticipated growth from volume recoveries and development stabilization. Wolfe Research pointed out that despite this "outsized" growth, the stock valuation remains "attractive." 

JPMorgan analyst Michael Mueller also upgraded Americold Realty Trust stock to Overweight from Neutral, expecting a strong earnings trajectory for the company in 2024 and 2025.

As of July 8, Americold Realty Trust’s dividend yield was about 3.39%. The shares have lost about 14% this year through July 8. Wolfe Research believes the stock has underperformed mainly due to volume pressures, but upcoming growth catalysts from the food supply chain and easier comps could be optimistic for the company. 

Equity Residential EQR

Illinois-based apartment-focused REIT Equity Residential EQR is another notable REIT stock getting upgrades from Wall Street analysts. In late June, Piper Sandler analysts upgraded the stock to Overweight from Neutral and raised its price target to $80 from $70. Piper Sandler anticipates that Equity Residential’s second-quarter results could reflect strong trends and result in a positive outlook.

Piper Sandler also sees improving trends in apartments, industrial, offices, and retail outlets.

Equity Residential has a 3.97% dividend yield as of July 8. In May, the company forecasted net operating income, revenue, and normalized FFO in 2024 to be toward the higher end of its existing guidance, driven by strong demand and pricing power in East Coast markets, among other factors. The company expects its revenue growth to be between 2% and 3%, while net operating income growth is expected to be between 1% and 2.6%. 

Digital Realty Trust DLR

Digital Realty Trust Inc. DLR is a data center REIT experiencing significant growth amid rising demand for data centers driven by the AI revolution. The company has increased its full-year guidance for renewal leases, expecting the metric to grow from 5% to 7%, up from its previous range of 4% to 6%. 

Last month, JPMorgan upgraded Digital Realty Trust to Overweight and raised its price target to $175 from $150. 

JPMorgan views the company as a substantial beneficiary of cloud and AI demand for data center capacity.

BMO Capital Markets analyst Ari Klein also upgraded the stock to Outperform from Market Perform, forecasting that the company's FFO growth will increase due to improved pricing, strong demand, and an improving balance sheet. 

BMO expects Digital Realty’s core FFO per share to rise by 1.5% in 2024, 6% in 2025, and 8% in 2026.

Acadia Realty Trust AKR

New York-based Acadia Realty Trust AKR, focusing on retail properties in densely populated areas, was upgraded by JPMorgan analyst Michael Mueller to Neutral from Underweight. Mueller cited organic and external growth as potential boosters for the stock. He also anticipates rising occupancy and strong pricing power. 

In the first quarter, Acadia's FFO was $0.33, surpassing estimates by $0.03. Revenue increased by 11.6% year over year to $91.36 million, beating estimates by $6.78 million.

During its Q1 earnings call, the company said it expects to achieve full occupancy at its properties by late 2025 or 2026. The company's management also said it has no "significant" debt maturities until the next "several years" and is not exposed to interest rate volatility until at least 2027 since it has locked in base interest rates on floating-rate debt. 

Acadia Realty has a dividend yield of about 3.9% as of July 8.

Risks

While analysts are bullish on the stocks above, broader risks in the real estate market remain an important factor to consider before investing. If the Federal Reserve decides to postpone rate cuts to the end of 2024 or the first quarter of 2024, headwinds affecting REITs could expand, resulting in problems for companies with high debts and maturing leases. 

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