Mounting
inflation
and
interest
rates
have
put
significant
pressure
on
several
sectors
—
especially
real
estate.
But
some
market
watchers
think
things
could
be
about
to
turn
around.
“I
think
it
would
be
an
opportune
time
to
invest
in
real
estate
especially
given
that
we
are
forecasting
interest
rates
to
decline
over
the
next
12
months,”
according
to
Kevin
Brown,
senior
equities
analyst
at
financial
services
firm
Morningstar.
He
suggests
that
investors
look
to
have
10%
of
their
portfolio
exposed
to
“real
estate
in
some
form,
as
a
good
rule
of
thumb.”
“That
exposure
can
come
from
REITs
[real
estate
investment
trusts]
or
direct
ownership,
or
other
real
estate
investments
if
you
are
a
large
investor.
But
REITs
present
a
great
and
easy
opportunity
to
the
asset
class
which
is
otherwise
difficult
to
invest
in.
With
rate
cuts
anticipated,
I
expect
REITs
to
outperform
the
broader
U.S.
market
this
year,”
Brown
told
CNBC
Pro
on
Feb.
14.
Rick
Romano,
Head
of
Global
Real
Estate
Securities
at
PGIM
Real
Estate,
agrees,
saying
that
REITs
offer
investors
“a
unique
and
fantastic”
opportunity
to
invest
across
geographies
and
segments
right
now.
Commercial
property
pick
One
segment
Brown
likes
is
commercial
properties
occupied
by
tenants
such
as
drugstores,
retailers,
food
outlets
and
gas
stations.
The
diversity
—
and
the
fact
that
tenants
are
selling
necessities
—
mean
they
are
not
overly
sensitive
to
economic
conditions
and
can
post
gains
even
if
a
recession
hits,
Brown
said,
naming
Realty
Income
as
a
REIT
to
consider.
Realty
Incomes
says
its
portfolio
includes
over
13,000
commercial
properties
with
a
98.8%
occupancy
rate.
“Realty
Income
has
a
triple
net
lease
structure,
which
means
their
tenants
are
responsible
for
everything,
[namely]
all
expenses
that
can
be
generated
by
the
property.
They
are
also
a
conservative
tenant
with
low
rents
relative
to
the
revenues
generated
by
tenants
so
there’s
a
very
low
risk
of
it
not
receiving
rent,”
Brown
said.
He
also
flagged
that
the
company
is
part
of
the
S
&
P
500
Dividend
Aristocrat
index
and
has
raised
its
dividend
payout
for
25
consecutive
years.
The
REIT
has
a
5-year
average
dividend
yield
of
4.5%
and
is
trading
at
around
a
10%
discount
to
net
asset
value
—
a
key
measure
of
a
REIT’s
value
—
according
to
FactSet
data.
Boom
in
data
centers
Aside
from
commercial
spaces,
PGIM’s
Romano
sees
opportunities
in
data
centers.
He
expects
a
shortage
of
supply
in
2023-2024,
“in
conjunction
with
this
very
severe
demand
spike
due
to
AI
right
now.”
“It’s
an
area
that
we
see
some
of
the
best
growth
rates
within
the
real
estate
space,”
he
added.
Among
the
data
center-focused
REITs
that
Romano’s
PGIM
Global
Real
Estate
Fund
is
invested
in
are
Prologis
(8.1%
of
the
fund
as
of
Dec.
2023)
and
Equinix
(5.3%
of
the
fund).
Prologis
—
which
owns
almost
800
properties
globally,
including
a
number
of
data
centers
—
is
trading
at
a
premium
of
around
4%
to
net
asset
value.
Equinix,
with
250
data
centers,
is
trading
at
a
premium
of
around
17%
according
to
FactSet
data.
Senior
housing
buys?
Morningstar’s
Brown
highlighted
the
senior
housing
market
as
a
segment
to
watch,
particularly
in
the
U.S.
as
the
baby
boomer
generation
ages.
“We’re
going
to
have
very
high
demand
growth,”
he
said,
highlighting
that
the
Covid
pandemic
reduced
building
activity
and,
as
such,
supply
is
not
keeping
up
with
occupancy
levels.
REITs
he
likes
include
Ventas
—
which
has
over
1,400
properties
including
senior
housing
facilities
and
outpatient
medical
buildings
across
the
U.S.,
U.K
and
Canada
—
as
well
as
Welltower
,
which
has
exposure
to
senior
housing,
outpatient
care
facilities
and
care
spaces.
“Ventas,
in
particular,
is
trading
at
a
very
big
discount,”
Brown
noted.
“Both
names
are
buys
into
the
bigger
senior
housing
theme.”
Ventas
is
trading
at
discount
of
around
3%
to
its
net
asset
value,
according
to
FactSet,
while
Welltower
is
trading
at
premium
of
around
55%.
