The Federal Reserve’s indication of imminent interest rate cuts has instilled optimism in the real estate sector, particularly benefiting stocks under pressure due to exposure to the office sector or high debt levels.
Thursday’s session suggests the rally was more pronounced among real estate companies with higher debt levels
This shift could mean a growing investor appetite for speculative real estate stocks on the premise that upcoming rate cuts could provide a much-needed reprieve for real estate investment trusts (REITs) facing significant debt burdens.
The Fed’s March dot plot suggests three rate cuts in 2024, with three more expected the following year. This strategic direction is accompanied by an improved growth forecast, from 1.4% to 2.1%, painting a potentially brighter picture for the real estate sector.
- THE Vanguard Real Estate ETF VNQ rallied, marking a 0.8% increase on Wednesday followed by a 0.7% increase on Thursday.
- Within the ETF’s portfolio, stocks of companies that are highly indebted or tied to the ailing office sector posted the biggest gains.
- Municipal Office REIT, Inc. THAT IS it skyrocketed more than 16% on Thursday, a significant rebound after a year-to-date loss of more than 30%. The company’s net debt amounted to more than six times its EBITDA (earnings before interest, taxes, debt, depreciation and amortization).
- Compass Inc. COMP AND Office Property Income Trusts OPI: Both companies recorded increases of more than 7%. Office Properties Income Trust’s net debt exceeded its EBITDA by more than eight times.
- Everywhere Real Estate Inc. HOME and Vornado Realty Trust VNO: These companies were also among the day’s best performers, with shares rising 7% and 5.5%, respectively.
- THE VanEck ETF for office and commercial real estate DESK showed a consecutive rally of 2.2% on Wednesday and Thursday, indicating that office-related REITs reacted positively after the Fed meeting.
| Company Name | 1 day % | Net debt/EBITDA (year) |
| Municipal Office REIT, Inc. | 16.47% | 6.8x |
| Office Property Income Trusts | 8.22% | 8.5x |
| Compass, Inc. | 7.93% | – |
| Everywhere Real Estate Inc. | 7.10% | 8.9x |
| DigitalBridge Group, Inc. DBRG | 6.42% | 0.2x |
| Vornado Real Estate Trust | 5.47% | 9.1x |
| Opendoor Technologies Inc. OPEN | 5.37% | – |
| Peakstone Real Estate Trust PKST | 4.92% | – |
| Zillow Group, Inc. ZG | 4.85% | – |
| Diversified health trust DHC | 4.82% | 13.0x |
| Douglas Emmett, Inc. OF THE | 4.71% | 8.6x |
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Photo: Sean Pollock via Unsplash
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