With Federal Reserve Chairman Jerome Powell set to deliver an important speech Friday, investors may finally begin to take him at his word: The central bank is going to maintain a hawkish stance to control the highest inflation in four decades. This means financial markets will remain volatile, despite the recent stock market rally.
In the Need to Know column on Aug. 24, Steve Goldstein summarized predictions of a new “supercycle in inflation and interest rates” from Dario Perkins, managing director for global macro economics at TS Lombard. There are two broad categories of REITs: Mortgage REITs, which lend money to commercial or residential borrowers and/or invest in mortgage-backed securities, and equity REITs, which own commercial or residential property and lease it out.
REITs by category Different types of REITs go through different economic cycles. For example, hotel REITs and their tenants suffered terribly in the early stages of the coronavirus pandemic, beginning with the virtual shutdown of the travel industry during the first half of 2020. “So the biggest player in e-commerce told the market it had too much and was rationalizing, and that caused the logistics stocks to de-rate,” he said.
He went on to say that Mizuho is monitoring third-party logistics operators, such as XPO Logistics Inc. XPO, FedEx and United Parcel Service Inc. UPS for signs of slowing demand if the economy downshifts significantly. We then looked at the investment concentrations of each REIT and removed all the mortgage REITs to bring the list down to 158 companies. We cut further to 112 companies for which consensus estimates were available among at least five analysts polled by FactSet for adjusted funds from operations in 2023.
We placed the 104 REITs into eight broad categories. This isn’t always easy, because a REIT may be highly diversified. So the categories are an attempt to place each REIT in a group according to its heaviest business concentration. We then consolidated a bit further to nine broad categories and sorted them by expected 2023 AFFO yield.
Health care Here are all nine REITs that lease out health-care properties and passed the screen. This group excludes companies focused on senior housing: