Chicago, IL – March 19, 2025 – Today, Zacks Equity Research discusses Welltower Inc. WELL, SBA Communications Corp. SBAC and SL Green Realty Corp. SLG.
Industry: Equity REIT
Link: https://www.zacks.com/commentary/2431572/bet-on-these-3-equity-reit-stocks-despite-industry-challenges
The REIT and Equity Trust - Other industry counterparts are likely to face the impacts of macroeconomic uncertainty, policy shifts and resulting inflationary pressures, along with a sustained period of elevated interest rates. Moreover, shifting tenant preferences are widening market gaps, making it harder for non-prime properties to compete.
Nevertheless, with the industry catering to a wide range of real estate categories, there are pockets of strength with solid demand across certain asset categories, backed by technological advancements and demographic shifts. Data center and healthcare REITs are experiencing strong growth, while the office sector shows optimism with rising leasing activity and demand for high-quality properties. The industrial and logistics sectors continue to thrive, driven by the expansion of e-commerce. Amid these, players like Welltower Inc., SBA Communications Corp. and SL Green Realty Corp. are poised well for growth.
The Zacks REIT and Equity Trust - Other sector comprises a diverse collection of REIT stocks representing various asset categories, including industrial, office, lodging, healthcare, self-storage, data centers, infrastructures and more. Equity REITs lease out space within these properties to tenants, generating income through rental payments.
Economic growth assumes a central role within the real estate sector as economic expansion directly correlates with higher demand for real estate, increased occupancy rates and greater bargaining power for landlords to command higher rental rates. Moreover, the performance of Equity REITs hinges on the specific dynamics of their underlying assets and the geographic location of their properties. It is imperative to thoroughly explore the fundamentals of these asset categories before making any investment decisions.
Economic Uncertainty and Policy Impacts: Uncertainty in the broader economy, combined with policy changes, including tariffs, poses risks to the real estate sector. Rising budget deficits and trade policy changes could drive inflation higher, reducing consumer spending power. Inflationary pressures from tariffs and other measures may lead the Federal Reserve to maintain elevated interest rates, which could hurt REITs that are sensitive to borrowing costs.
Since these REITs often rely on significant leverage, they are likely to face increased investor concerns when interest rates remain high. Elevated financing expenses can pressure REITs’ profitability and limit growth opportunities, making them more vulnerable during periods of economic stress. As a result, prolonged high rates could create headwinds for REITs in the current market environment.
Evolving Tenant Preferences Remain a Growing Concern: Shifting tenant preferences in a number of real estate categories, including office and industrial sectors, have intensified market disparities, favoring prime properties over non-prime ones. Office tenants now seek modern, amenity-rich spaces to attract employees back to the office, leading to increased demand for high-quality buildings.
Vacancy rates in prime office spaces have declined, while non-prime properties struggle with higher vacancies and declining rents. To better integrate technology and artificial intelligence, industrial tenants are also likely to persist in seeking higher-quality spaces.
Solid Demand Across Various Asset Classes Drives Growth Potential: A number of real estate sectors are expected to continue to benefit from the demographic shifts, including Sun Belt migration and the ongoing e-commerce boom. The rapid expansion of digital services, cloud computing, AI and 5G is driving strong demand for Telecommunication and Data Center REITs.
With increasing reliance on smartphones, smart devices, laptops and desktops, the need for enhanced processing, storage and computing power continues to grow, supporting sustained sector growth. In the office market, continued economic expansion and rising workplace attendance are strengthening optimism about future leasing trends. Factors like improved corporate confidence and return-to-office mandates picking up pace are acting as catalysts.
Companies are focusing on dynamic, amenity-rich environments to enhance employee engagement and retention, supporting the ongoing demand for high-quality office spaces. For healthcare REITs, which own a variety of types of healthcare-related real estate, including medical office buildings, senior living facilities, skilled nursing facilities and life science buildings, an aging population is expected to be a solid tailwind for the sector’s demand.
The Zacks REIT and Equity Trust - Other industry is housed within the broader Finance sector. It carries a Zacks Industry Rank #134, which places it in the bottom 46% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the southward revision of funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are losing confidence in this group’s growth potential of late. Over the past year, the industry’s FFO per share estimates for 2025 and 2026 have moved 5.2% and 5.3% south.
However, before we present a few stocks that you might want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
The REIT and Equity Trust - Other Industry has underperformed the S&P 500 composite and the broader Zacks Finance sector in a year.
The industry has risen 4.8% during this period compared with the S&P 500’s increase of 10% and the broader Finance sector’s 15.9% jump.
On the basis of the forward 12-month price-to-FFO ratio, which is a commonly used multiple for valuing REIT - Others, we see that the industry is currently trading at 15.08 compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 20.68. The industry is also trading below the Finance sector’s forward 12-month P/E of 16.35.
Over the last five years, the industry has traded as high as 22.22X and as low as 12.76X, with a median of 16.55X.
Welltower Inc.: A Toledo, OH-based REIT and S&P 500 company, Welltower partners with top senior housing operators, post-acute providers and health systems to fund real estate for innovative care models, enhancing wellness and healthcare experiences. Welltower’s portfolio includes properties in high-growth U.S., Canadian and UK markets, focusing on seniors housing, post-acute communities and outpatient medical facilities.
With an aging population and a projected increase in healthcare spending among seniors, Welltower’s senior housing operating portfolio is poised to benefit from these favorable market dynamics. Additionally, the outpatient medical segment is set to gain from rising outpatient visit trends in the near term. The company’s strategic restructuring efforts have strengthened its ability to attract operators and enhance cash flows. Furthermore, Welltower maintains a robust balance sheet.
WELL currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the company’s 2025 revenues calls for a 18.9% increase year over year. The consensus mark for 2025 and 2026 FFO per share has also been raised 1.5% and 2.3% over the past month to $4.89 and $5.44, respectively. The stock has risen 22.2% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SBA Communications Corp.: Headquartered in Boca Raton, FL, this REIT is a leading independent owner and operator of wireless communications infrastructure comprising towers, buildings, rooftops, distributed antenna systems (DAS) and small cells. It has a portfolio of more than 39,000 communications sites throughout the Americas and in Africa.
SBAC’s extensive and geographically diverse wireless communication infrastructure portfolio is well-positioned to gain from the wireless carriers’ high capital spending for network expansion amid growth in mobile data usage and accelerated 5G network deployment efforts. The long-term leases with its tenants assure stable revenues. Also, portfolio expansion moves, domestically and internationally, to capitalize on the secular trends of the industry are encouraging.
SBA Communications currently carries a Zacks Rank #2. The Zacks Consensus Estimate for SBAC’s 2025 revenue calls for a 1.1% increase year over year. Moreover, the Zacks Consensus Estimate for 2026 FFO per share has also moved up marginally over the past month. It has a long-term growth rate of 10.0%, which is ahead of the industry average of 6.5%. The stock has appreciated 11.4% in the past three months.
SL Green Realty Corp.: This REIT dominates the office real estate market of New York and has emerged as Manhattan’s largest office landlord. It mainly acquires, manages and maximizes the value of Manhattan commercial properties. In 2024, SL Green signed 188 office leases for its Manhattan office portfolio, comprising 3.6 million square feet of space. The mark-to-market on signed Manhattan office leases was 8.5% higher than the previous fully escalated rents on the same office spaces.
SL Green’s high-quality portfolio is well-poised for growth, given tenants’ healthy demand for premier office spaces with class-apart amenities. The improving job environment and return to office mandates, though slowly pacing, augur well. Its long-term leases and diverse tenant base assure stable rental revenues. SL Green’s focus on an opportunistic investment policy to enhance its portfolio quality is encouraging.
SLG currently carries a Zacks Rank #2. The Zacks Consensus Estimate for the company’s 2025 revenues calls for a 4.1% increase year over year. The consensus mark for 2025 FFO per share suggests a nearly 9% jump year over year. Also, the consensus mark for 2026 FFO per share has been raised 0.9% upward over the past two months. The stock has declined 12.8% in the past three months, and this marks a good entry point.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Since 2000, our top stock-picking strategies have blown away the S&P's +7.7% average gain per year. Amazingly, they soared with average gains of +48.4%, +50.2% and +56.7% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SL Green Realty Corporation (SLG) : Free Stock Analysis Report
SBA Communications Corporation (SBAC) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
