The steady dividend payers benefit from falling rates as well as bets on warehouse operators
Courtesy of Corrie Driebusch
Real-estate stocks are on a tear in 2019, beneficiaries of the surprising fall in interest rates as well as bets on the future of e-commerce.
On Monday, a quarter of the 32 companies in the S&P 500’s real-estate sector were trading at their highest levels in at least a year, according to Dow Jones Market Data. The sector is up 0.9% on Monday, and is the second-best performer in the index in 2019, lagging only highflying technology stocks.
Generally, investors tend to love these stocks when interest rates are low as real-estate investment trusts own property and pay steady dividends. Investors are increasingly discerning, though. While the sector includes companies that own malls, senior housing and apartment buildings, among the biggest winners this year are plays on e-commerce.
Prologis Inc. and Duke Realty Corp., industrial real-estate investment trusts that own and operate warehouses, are both trading at their highest levels since at least before the financial crisis. Investors and analysts say they view the stocks as a way to bet on the future of retail, as such warehouses are the lifeblood of online giants Amazon.com and JD.com as well as popular brands such as Home Depot and Wayfair. Prologis’ stock is up 37% so far this year, while Duke Realty’s shares have risen about 23% in that period.
An endorsement of this strategy came in the past month, when private-equity giant Blackstone Group LP struck a deal to purchase a network of U.S. industrial warehouses from Singapore-based GLP for $18.7 billion. The deal marked the largest private real-estate transaction ever.
The bet on the future of e-commerce adds extra incentive for some investors. But the big draw of the real-estate sector is still these companies’ steady payments in a low-rate environment, some analysts say.
While REITs benefited following the financial crisis as rates plumbed their lowest levels in years, in 2018 the S&P 500 real-estate sector stumbled, falling 5.6%, as rates climbed. This year, the expectation that the Federal Reserve will keep raising rates has vanished, and investors now overwhelmingly believe the central bank will cut rates as global growth sputters. That has pushed down 10-year Treasury yields to near 21-month lows. The S&P 500 real-estate sector is at an all-time high.