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.
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