While the inflation slightly declined in July from the 40-year high level, it remains elevated. Inflation still being uncomfortable to policymakers, the aggressive interest rate hike might continue, with better-than-expected economic data making the case stronger for the Fed.
While the rising short-term interest rates may have no significant implication for Real Estate Investment Trusts (REITs), as they are not reflective of strengthening economic conditions, the high inflation should bode well for them. REITs have historically outperformed well during periods of above-average inflation because they benefit from the rising prices of their properties.
Investors’ interest in REITs is evident from Vanguard Real Estate ETF’s (VNQ) 10.3% gains over the past month.
Moreover, demand for industrial REITs is also witnessing an uptrend, thanks to the rising need for logistics infrastructure given the growing e-commerce market. According to REIT firm Jones Lang LaSalle Incorporated (JLL), 74% predicted a 5% or more yearly growth in warehouse demand over the next three years.
Given the backdrop, investors could consider buying fundamentally sound industrial REITs Public Storage (PSA) and Extra Space Storage Inc. (EXR).
Public Storage (PSA)
PSA primarily acquires, develops, owns, and operates self-storage facilities. This Real Estate Investment Trust (REIT) is a member of the S&P 500 and FT Global 500.
On August 4, 2022, Joe Russell, President, and CEO, said, “As we approach our 50th Anniversary this month, I want to commend the Public Storage team, past and present, for delivering exceptional performance utilizing our industry-leading platform and digital customer experience, multi-factor external growth, and balance sheet strength. We are well positioned as we look to the future.”
PSA’s total revenues came in at $788.94 million for the second quarter ended June 30, 2022, up 15.9% year-over-year. Its rental income came in at $765.08 million, up 15.7% year-over-year. Also, its net operating income came in at $608.61 million, up 18.7% year-over-year.
PSA’s revenue is expected to increase 20.4% year-over-year to $4.11 billion in 2022. Its EPS is expected to increase 17% per annum for the next five years. Moreover, it surpassed EPS estimates in each of the trailing four quarters. Over the past year…
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