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On Monday, Evercore ISI issued a statement on the real estate sector, cautioning that volatility is expected to persist in the coming weeks. The firm’s analysts pointed out that the market had been anticipating the announcement of tariffs last Wednesday but was caught off guard by the higher-than-expected rates imposed on a broad range of countries. This resulted in a significant drop in the S&P 500, which closed down over 9%, while Real Estate Investment Trusts (REITs) experienced a nearly 7% decline.
The investment community’s concerns about a potential recession, slower job growth, and rising inflation were reflected in the REIT subsector’s performance last week. Malls were notably affected, with an 11.4% drop as investors fretted about the impact of increased tariffs on retail sales, particularly apparel. Mall giant Simon Property Group (NYSE:SPG) saw its stock decline 12.06% over the past week, though it maintains strong fundamentals with a healthy 5.75% dividend yield and robust gross profit margins of 82.5%. Macerich (NYSE:MAC) was the biggest laggard, plummeting 15%. InvestingPro analysis reveals SPG has maintained dividend payments for 32 consecutive years, with 12 more key insights available to subscribers. Industrial REITs also suffered, falling 10.6% due to the anticipated slowdown in global trade which could adversely affect warehouse demand.
However, there were some areas within the REIT sector that showed resilience. Tower REITs saw a slight increase of 0.7%, which analysts attributed to hedge fund covering and the stable demand for cell phone and streaming services during a recession. Net lease and free-standing REITs also demonstrated a more modest decline of approximately 2.5%, benefiting from their defensive nature and generally strong balance sheets.
Evercore analysts recommend cautiously investing in some of the worst performers from last week, such as EastGroup Properties (NYSE:EGP), Simon Property Group (NYSE:SPG), and SL Green Realty (NYSE:SLG). SPG’s financial health score of 2.78 (rated as GOOD by InvestingPro) and analyst consensus price targets ranging from $168 to $220 suggest potential upside despite recent volatility. Access the comprehensive Pro Research Report for deeper insights into SPG’s valuation and growth prospects. They also continue to favor single-family rental players like Invitation Homes (NYSE:INVH) and American Homes 4 Rent (NYSE:AMH), along with net lease companies such as Agree Realty Corporation (NYSE:ADC) and VICI Properties (NYSE:VICI), citing their solid balance sheets and reliable cash flows. Additionally, lower yields are expected to aid near-term funding.
The report concluded by noting that, following the Thursday and Friday pullback, REITs are now trading at a forward Adjusted Funds From Operations (AFFO) multiple of 19.5 times, which is two turns above the long-term average of 17.6 times. For SPG specifically, the company trades at a P/E ratio of 20.48x and maintains strong profitability with a return on equity of 80%, though current InvestingPro Fair Value calculations suggest the stock may be slightly overvalued at current levels. The implied capitalization rate spread over the 10-year Treasury yield stands at 213 basis points, marking the highest level since May 2023.
In other recent news, Springer Nature reported a 5% increase in revenue for the first quarter of 2025, reaching €1,847 million, with a 7% rise in adjusted operating profit. The company continues to focus on Open Access and AI technologies, which are key drivers of its growth strategy. Springer Nature has set its revenue guidance for 2025 between €1,885 million and €1,935 million, aiming to maintain its profit margin while targeting a 1% expansion in the midterm. In other developments, Simon Property Group announced the upcoming retirement of Allan B. Hubbard, an Independent (LON:IOG) Director on the company’s Board, effective May 2025. Hubbard, who has been with the board since 2009, has played a significant role in the company’s corporate governance and strategic direction. Meanwhile, CEO David Simon expressed gratitude for Hubbard’s contributions, highlighting his impact on the company’s foundation. These are the latest updates from both companies.
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