Home News 2 Real Estate Stocks I’m Even More Excited About After Earnings

2 Real Estate Stocks I’m Even More Excited About After Earnings

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The real estate sector hasn’t necessarily outperformed in the recent market downturn, which should come as no surprise. After all, income-focused stocks like real estate investment trusts (REITs) tend to be particularly sensitive to rapidly rising interest rates, as we’ve seen this year.

However, some subsectors of real estate have been particularly hard hit, with data centers and office REITs being two big examples.data center giant Digital Realty Trust (DLRMore 1.48%) As of this writing, it is down 43% from its 52-week high, with much of the decline occurring in the last few months. Empire State Realty Trust (ESRT 5.00%) — The owner of the iconic Empire State Building — is down 35% from its recent high.

In addition to general market weakness and rising interest rates, there are several company-specific reasons for poor performance. Data center REITs, especially his Digital Realty, have been targeted by prominent short-seller Jim Chanos. He believes technology companies will increasingly start handling their data center needs in-house. Also, with the trend toward remote work, there is growing uncertainty about the future of face-to-face office work.

But recent results from these businesses seem to indicate that these fears are just that.

Demand for data centers remains strong

Admittedly, Digital Realty’s third quarter earnings weren’t great. But they certainly tell a different story than what certain shortsellers would have you believe.

For one thing, despite a challenging environment for technology companies (which make up a large portion of Digital Realty’s customer base), Operating funds — FFO, the real estate version of income — increased slightly year over year.

However, the most important part of the report is the company’s leasing activity. Digital Realty signed a new lease worth $176 million in annual rental income, marking his third record and record number of bookings in the past four quarters. Also, the average signed lease doesn’t start for more than a year. Additionally, this is in addition to his $156 million renewal lease that was signed during the quarter.In short, future demand for data center space is still very strong.

Digital Realty plans to continue developing properties mainly overseas. We acquired land in Paris, Stockholm and Greece during the quarter. The company also completed his $1.7 billion purchase of a majority stake in Teraco, a leader in South African data centers. In short, Digital Realty’s business is moving forward and continues to capitalize on long-term trends. With a dividend yield of around 5% and a share price at its lowest level in almost five years, Digital Realty looks like a golden opportunity for patient investors.

Empire State shows NYC offices will survive

many Office REITs There is no doubt that we will suffer from the trend of remote work. But one of the reasons Empire State Realty Trust is one of my biggest investments in him is because of its iconic and highly attractive real estate portfolio. I want Especially its presence at the Empire State Building.

Recent numbers show Empire State’s business is headed in the right direction. At the end of the third quarter, the portfolio was 88.5% of his leased, putting him two percentage points higher than the previous year. And the Manhattan office portion of the portfolio performed even better with 89.4% of the space leased.

In the third quarter, Empire State’s core FFO increased 5% year-over-year and the company signed leases on over 335,000 square feet. And while international tourism is far from what it was pre-pandemic, the popular Observatory atop the Empire State Building generated $24.5 million in net operating income, more per capita than its pre-pandemic counterpart. revenue has increased by about 40%.

Finally, Empire State has a very large balance sheet, with $387 million in cash, $1.2 billion in total liquidity, plus $95 million in pending non-core real estate sales. .

solid long-term opportunity

The bottom line is that both of these REITs look like solid opportunities for patient long-term investors at these levels, especially after the latest results. Both can be quite volatile in the short term, but both are solid, well-run businesses that should have a very bright future.

Matthew Frankel, CFP® He holds positions at Digital Realty Trust and Empire State Realty Trust. The Motley Fool invests in and recommends Digital Realty Trust. The Motley Fool US Headquarters recommends Empire State Realty Trust. The Motley Fool Disclosure policy.

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