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Stock Strategist

Real Estate: Companies With Enduring Demand Will Persevere

Despite recent increases in economic uncertainty, there are still attractive opportunities within the real estate sector.

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  • Morningstar's real estate sector is trading at a price/fair value estimate ratio of 0.93, roughly in line with the discount on Morningstar's aggregate coverage.
  • In the U.S., our favorite property sector remains healthcare, with all three stocks under coverage-- HCP (HCP), Welltower (HCN), and Ventas (VTR)--trading at material discounts to our fair value estimates.
  • Property stocks in Australia and New Zealand have significantly outperformed the broader market, with very few trading below our fair value estimates. Our preferred exposure is vertically integrated logistics specialist Goodman Group (GMG), which is generating strong growth while simultaneously deleveraging. Westfield (WFD) is also attractive, with significant value in its development pipeline.
  • We view recent themes in commercial real estate as generally defensive in nature. REITs are focused on repositioning and strengthening their portfolios, deleveraging and capital recycling, and finding attractive risk-adjusted redevelopment and development opportunities versus external acquisitions. Meanwhile, investors have displayed a flight to safety and continued hesitation about the potential implications of rising interest rates.

Edward Mui does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.