REITs Are Back In Favor With Analysts

Analysts’ estimates of real estate investment trusts (REITs) have been on a roller coaster ride in 2023.  

After beginning the New Year with a slew of upgrades on REITs that had been badly battered throughout 2022, the analyst community was extremely quiet in February. Although there were dozens of Maintain and Reiterate ratings, not one analyst upgraded a REIT in February, and there were nine REITs that received downgrades.

But as March comes to an end, REITs seem to be back in favor with analysts. Several factors are working in REITs’ favor right now. First, because many of them have already had their share prices trounced, the valuations and yields are becoming more enticing

Second, with the recent fears of bank failures, many on Wall Street predict the Federal Reserve rate hikes may be nearing an end — even if inflation persists above the Fed’s 2% target rate.

Third, the weaker-than-expected forward guidance many REITs delivered for the first quarter of 2023 has already been factored into their prices, and perhaps analysts are looking further down the road.

In the first half of March, only four REITs received analyst upgrades: Empire State Realty Trust Inc. ESRT, AGNC Investment Corp. AGNC, VICI Properties Inc. VICI and Apartment Income REIT Corp. AIRC. 

The four REITs are in different sub-sectors. Empire State is an office REIT, AGNC is a mortgage REIT (mREIT), VICI Properties is a diversified REIT with gaming properties and Apartment Income is a residential REIT.

The trend of analysts upgrading REITs has continued more vigorously through the second half of March, and the upgraded REITs again are in different subsectors. This is a much healthier sign for REITs than if analysts were only upgrading one or two specific subsectors.

Here’s a look at the most recent analyst upgrades:

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Eastgroup Properties Inc. EGP is an industrial REIT that owns and operates properties in major Sun Belt markets, with an emphasis on Florida, Texas, Arizona, California and North Carolina. Eastgroup is a member of the S&P MidCap 400 and Russell 1000 indices.

On March 20, Mizuho analyst Vikram Malhotra upgraded Eastgroup Properties from Neutral to Buy while raising the price target from $180 to $185.

Vornado Realty Trust VNO is a diversified (office, retail, apartment and advertising) REIT with a large presence in New York City, Chicago and San Francisco. A member of the S&P Midcap 400, Vornado Realty has been listed on the New York Stock Exchange since 1962. Vornado Realty owns and operates over 26 million square feet of Leadership in Energy and Environmental Design (LEED)-certified buildings.

On March 21, Piper Sandler analyst Alexander Goldfarb upgraded Vornado Realty from Underweight to Neutral but cut its price target from $18 to $16.

Regency Centers Corp. REG is a Jacksonville, Florida-based retail REIT that owns and operates 404 properties in higher-income areas, mostly on the U.S. East Coast. Its portfolio includes groceries, restaurants, service providers, medical spaces and higher-class retailers.

On March 23, Barclays analyst Ross Smotrich upgraded Regency Centers from Equal-Weight to Overweight and raised the price target from $69 to $70.

Americold Realty Trust Inc. COLD is an Atlanta-based industrial REIT that specializes in owning and operating temperature-controlled warehouses. Americold has over 240 locations across the U.S., Canada, Australia, New Zealand and Argentina.

On March 23, Barclays analyst Anthony Powell upgraded Americold Realty from Underweight to Equal-Weight and raised the price target from $30 to $32.

Equinix Inc. EQIX is a specialized data center REIT that owns and operates a network of over 240 data centers across 71 major metropolitan areas, providing critical infrastructure to over 260 Fortune 500 companies around the world.  

On March 27, BMO Capital Markets analyst Ari Klein upgraded Equinix from Market Perform to Outperform, while raising the price target from $755 to $785.

Easterly Government Properties Inc. DEA is an office REIT that acquires, develops and manages Class A commercial properties and leases them to government agencies through the General Services Administration. Easterly Government Properties owns 86 properties in 26 states. Its occupancy rate is above 99%.

On March 28, Compass Point Research & Trading analyst Merrill Ross upgraded Easterly Government Properties from Neutral to Buy while setting a $17 price target.

Analysts are not always correct, and investors should perform due diligence before acquiring any stock. But it’s a promising sign that analysts are returning to more positive positions in the REIT sector.  

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