After a volatile year for many asset classes, real estate investment trusts — or REITs — are back in the spotlight. REITs, which invest in income-generating real estate such as shopping malls, housing projects and hospitals, had a generally positive earnings season last quarter, with analysts saying some will remain resilient even into a recession. “We view REIT second quarter results as attractive,” Wells Fargo Investment Institute said in a note last week. “Despite a relatively challenging quarter, real estate investment trusts (REITs) were able to generate attractive fund growth from operations per share and net operating income from the same real estate.” It noted that the REIT industry posted 14.2% growth in operations-per-share funds — a key earnings metric used by REITs — from 14.2% in the same period a year earlier. Tech REITs Looking ahead, Wolfe Research emphasized that tech REITs, targeting data centers and cell towers, could be particularly resilient in a challenging economic environment. “Tech REITs (in their favor in an economic downturn) tend to have rental growth that does not coincide with broader economic growth,” Wolfe Research analysts wrote in a recent note. Citi said in a Sept. 9 report that it was overweight in data center REITs. It highlighted Equinix Reit and Digital Realty Trust as trusts to watch, and said growing interest in “hybrid cloud” infrastructure – a combination of both public and private clouds – should support ongoing IT outsourcing. It was also bullish on cell tower REITs, especially American Tower REIT and SBA Communications REIT. The bank said the tower business model remains well positioned to grow through ongoing investments from mobile carriers. Healthcare REITs Meanwhile, Morgan Stanley noted in a recent report that healthcare REITs had outperformed the overall market this year, dropping 7% year-to-date as of late August. In comparison, the MSCI US REIT index fell 18% over the same period and the S&P 500 lost about 17%. “Given the demographic tailwind, significant room for occupancy recovery to pre-Covid levels, emerging pricing power and limited new supply, we believe outperformance may persist,” the investment bank said. It said it was most optimistic about senior housing, given the estimated 70 million baby boomers ages 58 to 76 who made up 21% of the U.S. population last year. The bank cited OECD projections that the US cohort aged 75 and older will grow to about 34 million by 2030, from 24 million by 2021. Housing over the rest of the decade may be the strongest we’ve ever seen.” Morgan Stanley analysts wrote. The bank chose Welltower, a pure-play REIT for seniors, and gave it a price target of $90 — or a potential upside of about 16%. “WELL has the highest exposure to senior housing, the highest occupancy potential and greater security of execution,” Morgan Stanley said. When a recession looms, the bank noted that around the time of the global financial crisis, Welltower’s occupancy rate “declined modestly” in 2009 and remained flat in 2010.” — CNBC’s Jasmin Suknanan contributed to this report.
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