The real estate sector has returned to the spotlight in recent weeks as a result of a number of shocks, including a drop in the values of commercial real estate assets and a fall in interest rate expectations.
The Commercial Vs. Residential Real Estate Landscape: Commercial mortgage-backed securities (CMBS) prices have fallen to their lowest level since October 2009, according to a recent Bank of America report.
Michael Hartnett, chief investment strategist at BofA, said he sees commercial real estate as "the next shoe to drop" because to stricter lending rules for CRE loans from U.S. regional banks and a still low 50% occupancy rate in offices compared to pre-COVID levels.
Contrary to many expectations, the residential real estate market has so far held up very well.
Sales of new single-family homes rose 1.1% month over month in February 2023 to a seasonally adjusted annualized rate of 640,000, the highest level since August. The NAHB/Wells Fargo Housing Market index edged higher for a third month to 44 in March of 2023, a new high since September 2022.
"While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers," Robert Dietz, NAHB chief economist, said.
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In light of these recent trends in the property market, we performed a screening within the Real Estate Select Sector SPDR (NYSE: XLRE) to determine which companies are more or less exposed to commercial real estate.
3 Winners In The Real Estate Sector
Extra Space Storage EXR
Extra Space Storage Inc. is a self-administered and self-managed REIT and a component of the S&P 500. The firm provides a broad range of storage facilities around the country, including boat storage, RV storage and business storage.
Over the last five years, net income has increased at a 12.4% annualized pace and the company offers a 4.23% dividend yield.
EXR shares are 5% higher year-to-date as of March 27. The forward P/E ratio is 25.6x according to Benzinga Pro data.
Prologis PLD
Logistics facilities company Prologis owned 5,495 buildings comprising about 1.2 billion square feet in 19 countries as of December 2022. Its business strategy is focused on warehouses that are located close to huge urban areas where land is scarce.
Over the last five years, net income has increased at a 15.3% annualized pace and the company offers a 2.97% dividend yield.
PLD shares have risen 4.5% year-to-date as of March 27. The forward P/E ratio is 41.6x, according to Benzinga pro data.
Public Storage PSA
Public Storage, is a REIT that primarily acquires, develops, owns and operates self-storage facilities. It’s also a component of the S&P 500 and FT Global 500.
Over the last five years, net income has increased at a 24.7% annualized pace, and the company offers a 4.2% dividend yield.
PSA shares have risen 3.4% year-to-date as of March 27. The forward P/E ratio is 25.4x, according to Benzinga Pro data.
3 Losers In The Real Estate Sector
Boston Properties BXP
Boston Properties Inc. is the biggest publicly traded developer and owner of Class A office buildings in the U.S., with offices in Boston, Los Angeles, New York, San Francisco and Washington, D.C. The Company’s portfolio totals 51.2 million square feet and 196 properties.
Over the last five years, net income has increased at a 12.9% annualized pace and the company offers a 7.9% dividend yield.
BXP shares have fallen 27% year-to-date as of March 27. The forward P/E ratio is 20.3x, according to Benzinga Pro data.
Alexandria Real Estate Equities ARE
Alexandria Real Estate Equities, Inc. is an urban office real estate investment trust that develops Class A buildings concentrated in urban life science, technology and agtech complexes.
Over the last five years, net income has increased at a 25.7% annualized pace and the company offers a 4.04% dividend yield.
ARE shares have fallen 18% year-to-date as of March 27. The forward P/E ratio is 35.7x, according to Benzinga Pro data.
CBRE Group CBRE
Founded in 1906 and headquartered in Dallas, CBRE Group, Inc. operates as a commercial real estate services and investment company worldwide.
Over the last five years, net income has increased at a 15.1% annualized pace and the company pays no dividend.
CBRE shares have fallen 12% year-to-date as of March 27. The forward P/E ratio is 13.8x, according to Benzinga Pro data.
Chart: TradingView
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