Investing.com -- Truist Securities maintained a neutral outlook on real estate investment trusts for 2025, factoring improving fundamentals but impact of long-term interest rates and tight yield spreads.
It forecasts a 10% total return for the sector, with 4.5% and 6.3% average funds from operations growth in 2025 and 2026, respectively.
Truist upgraded CubeSmart (NYSE:CUBE), Elme Communities, Equity LifeStyle Properties, and Sun Communities (NYSE:SUI) to "Buy" from "Hold" but downgraded Sabra Health Care REIT (NYSE:WELL) and Plymouth Industrial REIT to "Hold."
Truist is optimistic about data centers, retail, industrial, and gaming REITs, with EQIX, GLPI, and FRT among its top picks. However, the firm remains cautious on self-storage and specific names like Extra Space Storage (NYSE:EXR) and Safehold (NYSE:SAFE).
A decline in new supply is expected to support rental rates and asset values, while moderate inflation could boost property valuations. Improved access to capital and accretive investment opportunities, along with narrowing credit spreads, are also positives.
The sector trades at a 3% discount to net asset value, with some subsectors offering value opportunities. Earnings growth, particularly in industrial, lodging, and triple-net REITs, is forecast to accelerate this year.
Truist flagged interest rate risks, debt refinancing challenges, and slowing GDP and employment growth as potential headwinds. Policy changes under the incoming administration could also have unpredictable effects on REITs.