shares real estate income (NYSE: O) According to the data provided, it will decrease by 7% by 2024 S&P Global Market Intelligence. This is significantly lower than S&P 500 Index (SNPINDEX:^GSPC)up 23.3% last year. Real Estate Investment Trusts (REITs) Still Turns red after adding Its high-yield dividend (negative The total return was 2.1%, compared with 25% for the S&P 500 (plus reinvested dividends).
The following are the influencing factors REIT last year, and whether it can rebound in 2025.
All things considered, real estate revenue looks set to perform well in 2024. this Diversified Real Estate Investment Trust is expected to increase its adjusted funds from operations (FFO) about 5%, an increase from initial expectations. The company completed a highly accretive $9.3 billion acquisition of similarly diversified REIT Spirit Realty in early January. Additionally, it raised its full-year investment guidance to $3 billion from $2 billion (excluding the Spirit deal).
This growth allows the REIT to continue growing its dividend. The company has increased its dividend for the 128th time since going public in 1994 (and the 109th consecutive quarter).
Despite all of these positives, REIT stock prices have fallen sharply this year, falling sharply over the past few months:
The year-end sell-off coincided with a shift in Fed interest rate policy. Even though the Fed finally started cutting interest rates federal funds rate It did not have the expected impact on interest rates late last year as inflation remained high. Coupled with the strong economy, the Fed subsequently lowered its expectations for future rate cuts in December. This has led markets to expect interest rates to continue for a longer period of time.
Higher interest rates have a significant impact on commercial real estate. They increase borrowing costs, making it more expensive for real estate operators to finance acquisitions and development projects. They also affect the value of real estate, which in turn affects the REIT's share price.
These factors have increased capital cost The growing number of real estate investment trusts such as Realty Income has made it more challenging for them to complete accretive acquisitions with external financing through stock sales and new debt. That's why Realty Income invested only about $3 billion last year, down from more than $9 billion in 2023 and 2022.
However, the REIT was still able to grow at a solid pace last year by acquiring Spirit Realty and retaining more cash after paying dividends to fund investments. At the same time, it plans to counter headwinds from interest rates by Enter private capital markets and launch a fund to enhance returns on its invested capital.
Realty Income enters 2025 with a lower valuation and a higher dividend yield (about 6%). Since the REIT expects adjusted FFO per share to continue growing at 4% to 5% annually, it could generate total returns of more than 10% annually over the long term, even in the face of interest rate headwinds. This makes it appear to be a compelling investment opportunity for income-seeking investors Now.
Before buying real estate income stocks, consider the following factors:
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Matt DiLallo serves in the Real Estate Revenue Department. The Motley Fool has an interest in and recommends Realty Income. The Motley Fool has a disclosure policy.
“ Why Real Estate Income Stocks Will Significantly Underperform the S&P 500 in 2024 ” was originally published by The Motley Fool