Every time it seems as though the United States and China get closer to a trade deal, it turns into a one step forward, two steps back gambit. While a 10% tariff on an additional $300 billion worth of personal consumption expenditures on Chinese goods only equates to about 0.66% of total spending, the ongoing rhetoric and tit-for-tat measures are starting to take their toll on investors, and maybe more importantly, the psyches of chief executive offices.
Until deals are finally in place, investors will face the continued daily drone from politicians, financial news pundits and many others. So what are whipsawed investors to do? Here’s a hint: Location, location, location.
That’s right, real estate is a great place to look now, and despite the fact that sector has been on fire, there still are numerous reasons to consider investing, not the least of which include these four:
- Real estate is domestically focused, immune from tariffs and not exposed to the strength of the U.S. dollar.
- Until recently, some investors have been underweight the sector, concerned over higher rates, an anomaly given the 10-year Treasury yield is at the lowest level since 2014.
- There have been no signs of delinquencies.
- First-quarter earnings were positive, with upward earnings revisions for industrial and apartment real estate investment trusts. In addition, positive momentum was seen from the self-storage segment as well. The second-quarter numbers posted so far have been very solid as well.
One way for investors to play the sector is to buy the Real Estate Select Sector SPDR Fund (NYSE: XLRE). We looked at the holdings, and in the top 10 are numerous data center real estate investment trusts (REITs), some of which do have big overseas exposure. So we focused on some of the largest holdings that are real estate giants here at home, those with limited overseas exposure. These five are all rated Buy at major Wall Street firms and make sense for investors looking for safety and income.
This industrial REIT has some foreign exposure, but it pales in comparison to the U.S. holdings. Prologis Inc. (NYSE: PLD) develops and manages the largest global portfolio of industrial real estate, concentrated in major port markets, for global trade, regional distribution markets and large population centers.
The portfolio concentration is about 80% in the Americas, 17% in Europe and the remainder in Asia. However, more than 90% of the company’s equity is priced in U.S. dollars, mitigating currency risk to earnings. Prologis also operates the largest industrial property fund platform for large institutional investors.
Prologis investors are paid a 2.63% distribution. Merrill Lynch rates the shares at Buy with a $90 price target. The Wall Street consensus price target is $84.58, and the stock was last seen trading at $80.51 per share.
This self-storage leader always has been a go-to REIT stock for investors. Public Storage Inc. (NYSE: PSA) is a fully integrated, self-administered and self-managed REIT that primarily acquires, develops, owns and operates self-storage facilities.
As of March 31, 2019, PSA had interests in 2,444 self-storage facilities located in 38 states, with approximately 164 million net rentable square feet in the United States and 35% equity interest in Shurgard, which owned 231 storage facilities located in seven Western European nations, with approximately 13 million net rentable square feet.
Public Storage investors receive a 3.21% distribution. Merrill Lynch has a $264 price target to go along with its Buy rating. The consensus price objective is $215.64, but the shares closed way above that level on Friday at $249.54.
This apartment REIT company 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.
As of March 31, 2019, it owns or has investments in 310 properties, consisting of 80,061 apartment units located primarily in Boston; New York; Washington, D.C.; Seattle; San Francisco; southern California; and Denver.
The company pays investors a 2.82% distribution. Merrill Lynch has an $83 price target, while the consensus target was last seen at $78. The shares ended last week at $80.48 apiece.
Simon Property Group Inc. (NYSE: SPG) invests in the real estate markets across the globe. It engages in investment, ownership, management and development of properties. The company primarily invests in regional malls, premium outlets, mills and community/lifestyle centers to create its portfolio.
Through its subsidiary partnership, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European REIT with over 260 shopping centers in 13 countries.
One key driver of growth will include the more than $1.0 billion of development/redevelopment planned over the next few years. Merrill Lynch also feels that the company’s high-quality portfolio has weathered the retail storm much better than most.
Shareholders of Simon Property receive a massive 5.15% distribution. The $188 Merrill Lynch price target is just below the $189.11 consensus price target. Shares ended trading on Friday at $159.25.
This one pays a solid distribution and is a pure play on the aging U.S. population. Welltower Inc. (NYSE: WELL) is a fully integrated and self-administered REIT invested across the full spectrum of health care real estate
The company also offers property management and development services. As of last year, Welltower had ownership interests in nearly 1,400 facilities in high growth markets in the United States, the United Kingdom and Canada, across senior housing triple-net, senior housing operating, skilled nursing/post-acute and medical office buildings.
Welltower shareholders receive a solid 4.11% distribution. Stifel has an $87 price target and a Buy rating. The posted consensus target price is $82.80, and the stock closed at $84.76 on Friday.
Some of these five top companies have limited overseas exposure but do the great percentage of corporate business right here at home. Given the safety and dependable income, their stocks all make sense for nervous investors. Note though that they have had a big run, so scale buying makes sense when they pull back some.
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