The REITs (Real Estate Investment Trusts) are worth checking out if you’re looking to get paid handsome distributions while you wait for the Federal Reserve to finally cut interest rates. Undoubtedly, capital-intensive REITs stand out as big winners as rates fall. And while it’s not guaranteed that rates will fall as quickly as they are being priced into various REITs and stocks right now, I do view the rate-sensitive securities as great bets for those seeking to invest for the next several years.
Indeed, the biggest losers of rate hikes stand out as potentially rising as the biggest winners once rates drop. And in this piece, we’ll check out a trio of exciting and modestly priced REITs that could make solid buys for the summer.
So, whether the Fed acts in September or not, the following names seem like great REITs to buy for the season.
Equinix (EQIX)
Equinix (NASDAQ:EQIX) is a data center REIT that’s really felt the hit of higher interest rates. Despite standing out as a potential beneficiary of the AI data center boom, EQIX shares have remained relatively choppy and rather unrewarding in recent years.
With the stock down close to 15% from February 2024 all-time highs, perhaps value-conscious investors seeking a perfect balance of growth and income should give the name a second look this summer.
Earlier this month, Mizuho Securities analyst Vikram Malhotra started EQIX shares with an outperform rating, noting that data center fundamentals “are set to get even better.” He’s unlikely to be wrong, even if Hindenburg Research, who was short shares, previously remarked that Equinix was selling an “AI pipedream.”
While Equinix hasn’t been an immediate AI beneficiary quite yet, it seems incredibly risky against the firm as it better positions itself for the AI boom.
Prologis (PLD)
Prologis (NYSE:PLD) is a logistics real estate firm that has since jumped into the data center waters with both feet. While the second-quarter sales slump was a concern to some, the forward-looking trajectory looks good enough to get behind PLD shares while they’re still off more than 25% from their 2022 highs.
Undoubtedly, many big-name e-commerce firms overinvested in warehouse capacity during the earlier of the COVID-19 pandemic. Nowadays, the tables have turned, with American industrial vacancy rates rising to levels not seen in a number of years. Though the tides may not turn anytime soon, I do find Prologis has an opportunity to shift gears from warehouses to data centers.
“Every time we convert a warehouse to a data center, we pick up lots of value, like $500 a foot of value,” said Prologis CEO Hamid Moghadam.
As rates fall, the financial toll of such capital-intensive conversions could soften considerably.
Crown Castle (CCI)
Finally, we have Crown Castle (NYSE:CCI), a cell tower REIT that was devastated by the past few years’ worth of interest rate hikes. Today, CCI shares are still down nearly 48% from their peak in December 2021. Over the past month, CCI stock gained more than 13%, thanks in part to a solid second-quarter earnings report that saw sales rise 4.5%.
As the firm pushes forward with its strategic operational efficiency driving measures while placing more emphasis on higher-return projects (like small cells), I like the direction Crown Castle is headed. Additionally, lower rates would be a massive weight off the firm’s back, given its hefty capital spend and notable debt load.
If you’re looking for a REIT to play markedly lower rates, it’s tough to top CCI shares while the yield is at a very generous 5.79%.
On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly orindirectly) any positions in the securities mentioned in this article.
