Barron’s reports that two real estate investment trusts, or REITs, are good investment picks despite rising interest rates, which raise their borrowing costs and can slow real estate development.
Chris Lucas and his team of analysts at Capital One like Regency Centers (REG) and Weingarten Realty Investors (WRI), Barron’s reports.
Both stocks are rated overweight, with price targets of $78 a share and $42 a share respectively. That implies upside of 16% for Regency and 27% for Weingarten, Barron’s reported.
“The current headline-driven environment has created a disconnect between private and public market values, providing an opportunity to acquire high-quality shopping center REITs at a discount,” Barron’s quoted Lucas as saying.
“REG hit the trifecta with the completion of its merger with EQY including access to the 30-year bond market with pricing consistent with higher-rated securities, inclusion in the S&P 500, and, most importantly, acquiring a portfolio that adds to REG’s gateway market exposure with significant re/development opportunities,” Barron’s quoted Lucas as saying.
“In addition, REG has very little exposure to the problematic retailers currently in the headlines. In our view, WRI is extremely attractive on a relative and intrinsic basis with a disciplined capital allocation strategy focused on infill development and little exposure to the problem tenants currently in the headlines.”
Meanwhile, the most worrisome area of the REIT market consists of shopping malls, because of the difficulties faced by retailers this year.
“All signs point to things getting worse for this group of companies,” Bloomberg News reports. “Shares in North American REITs with a large portion of their investment concentrated in malls are now down 10 percent in the past year, compared with a 6 percent rise across all REITs.”
Retailers are facing a broad slowdown in sales at brick-and-mortar stores.
“Retail traffic across all types of retail real estate — including malls, strip centers, and other shopping areas — has been posting monthly declines of as much as 18 percent in the U.S. and Canada from the year before, according to analysis firm Prodco. Traffic to luxury retailers has fared even worse,” Bloomberg reports.
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