With inflation at a 40-year high and the Fed resolving to get inflation down, the market volatility is here to stay. Real Estate Investment Trusts (REITs) are historically known to provide a hedge in an inflationary environment. So, we think fundamentally sound REITs, New Residential Investment (NRZ), CoreCivic (CXW), and EPR Properties (EPR) could be ideal investments now.
REITs or Real Properties Investment Trusts tend to be popular among investors looking for investment income and hedge against inflation. REITs can be solid performers in an inflationary environment due to their ability to increase rents and then pass that income on to shareholders. Studies show REITs have historically provided protection against inflation and outperformed the broader stock market during rising inflation. Moreover, REITs are required to pay out 90% of their taxable income to shareholders in the form of dividends, helping to ensure a reliable stream of income.
The sky-high inflation coupled with the rising interest rates and market volatility is making investors anxious. According to Moody’s estimate, the soaring inflation is costing U.S. households an extra $327 per month as of March 2022. Additionally, the consumer price index rose 8.3% on the headline and 6.2% on the core on an annualized basis last month. On the other hand, Federal Reserve Chair Jerome Powell emphasized his resolve to get inflation down. “If that involves moving past broadly understood levels of neutral, we won’t hesitate to do that,” said the central bank leader.
Given the heightened volatility in the market, we think fundamentally sound REITs, New Residential Investment Corp. (NRZ), CoreCivic, Inc. (CXW), and EPR Properties (EPR) could be ideal investments now.
New Residential Investment Corp. (NRZ)
NRZ is a real estate investment trust in the United States, operating through Origination; Servicing; MSR Related Investment; Residential Securities; Properties and Loans; Consumer Loans; Mortgage Loans; and Corporate segments.
NRZ’s total revenues for the fiscal first quarter ended March 31, 2022, increased 51% year-over-year to $1.73 billion. Its net income grew 129% from the year-ago value to $689.93 million, while its EPS rose 110.8% year-over-year to $1.37. Also, its cash, cash equivalents, and restricted cash balance stood at $1.97 billion, up 67.4% from the prior-year quarter.
Analysts expect the company’s revenues to increase 145.8% year-over-year to $1.12 billion in the current quarter ending June 2022. The consensus EPS estimate of $0.36 indicates a 14.9% year-over-year growth in the same quarter. Moreover, it has surpassed Street EPS estimates in each of the trailing four quarters.
The stock has gained 9.6% over the past nine months to close the last trading session at $10.63.
NEZ’s sound fundamentals are reflected in its POWR Ratings. NRZ has an overall B rating, equating to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
NRZ also has a B grade for Growth, Value, Momentum, and Quality. It is ranked #1 out of the 31 stocks in the REITs – Mortgage industry.
In addition to the POWR Ratings grades highlighted, one can see the NRZ’s Stability and Sentiments ratings here.
CoreCivic, Inc. (CXW)
CXW owns and operates partnership correctional, detention, and residential reentry facilities in the United States. It operates through three segments: CoreCivic Safety; CoreCivic Community; and CoreCivic Properties.
For the fiscal first quarter ended March 2022, the company’s net income and EPS came in at $19 million and $0.16, reflecting a substantial increase from its year-ago net loss and loss per share of $125.57 million and $1.05. Moreover, Funds From Operations (FFO) was $41.53 million, or $0.34 per share, compared to a loss of $100.85 million, or $0.83 per share, in the year-ago period. Also, Earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 99.6% year-over-year to $83.03 million.
The consensus revenue estimate for the ongoing fiscal year to come in at $1.87 billion indicates a marginal increase year-over-year, while the consensus EPS estimate of $0.73 indicates a 269.8% increase year-over-year.
CXW shares have gained 50.9% over the past year and 22% year-to-date to close the last trading session at $12.16.
It’s no surprise that CXW has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. CXW also has a B grade for Growth, Value, and Momentum. Among the 51 stocks in the REITs – Diversified industry, it is ranked #9.
Click here to view additional ratings for Quality, Sentiment, and Stability.
EPR Properties (EPR)
EPR is a leading experiential net lease real estate investment trust (REIT) specializing in select enduring experiential properties in the real estate industry.
EPR’s total revenue increased 40.9% year-over-year to $157.47 million in the fiscal first quarter ended March 31, 2022. Also, net income rose 1,148.3% from the prior-year quarter to $42.19 million. The company’s EPS grew 1,300% year-over-year to $0.48. Furthermore, its FFO came in at $85.70 million, reflecting an increase of 127.9% year-over-year, while FFO per share increased 118% from the year-ago value to $1.09. AFFO and AFFO per share came in at $87.85 million and $1.16, compared with the prior-year quarter values of $38.93 million and $0.52.
Street expects the company’s revenues to come in at $151.77 million in the ongoing quarter, indicating an increase of 21.1% year-over-year. Also, EPR’s FFO per share is expected to grow 59.6% from the same period last year to $1.09. EPR topped Street FFO estimates in each of the trailing four quarters.
The stock has gained 6.3% year-to-date. EPR shares have gained 7.5% over the past three months to close the last trading session at $50.50.
According to our POWR Ratings, EPR has a B grade for Growth, Momentum, and Quality. It is ranked #8 out of the 32 stocks in the REITs – Retail industry.
To get additional EPR ratings for Value, Stability, and Sentiment, click here.
NRZ shares rose $0.11 (+1.03%) in premarket trading Monday. Year-to-date, NRZ has gained 2.62%, versus a -16.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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