Get Real Estate Investing Right With REIT | ETF Trends

In 2025, the real estate sector could be at inflection point. The Federal Reserve might not lower interest rates as aggressively as hoped. That could potentially weigh on rate-sensitive real estate stocks. On the other hand, some market observers see considerable value in listed real estate investment trusts (REITs).

There’s also the possibly that President Trump will prove successful in his efforts to pressure the Fed to lower rates. That could benefit real estate equities and exchange traded funds such as the ALPS Active REIT ETF (REIT). Despite speculation that the Fed may not be as helpful as hoped in terms of rate cuts, the actively managed REIT is off to a solid start to 2025 as highlighted by a year-to-date gain of 1.61%.

REIT sports a dividend yield of 3.01%, which is enticing when considering it’s not too high so as to imply some of the ETF’s holdings are at risk of being dividend offenders. On a related note, the REIT’s status as an actively managed ETF is pertinent because the fund’s managers can focus intently on real estate stocks with clean balance sheets and the fundamentals to support current and future payout obligations.

Value Abounds in Real Estate Stocks

The ALPS ETF could prove pertinent to investors at a time when value stocks are perking up and as advisors and investors look to decrease portfolio dependence on megacap growth fare. Regarding value, “the real estate stocks that Morningstar covers looked 7.6% undervalued as of Jan. 20, 2025,” noted analyst Jack Armanini.

Several of the real estate stocks Morningstar named as the 10 best to own now are members of the REIT lineup, including Kilroy Realty (KRC), which owns office space in marquee markets such as Los Angeles, San Diego, and San Francisco.

“Kilroy’s management has been able to time the boom in technological employment occurring in the largest metropolitan areas along the West Coast. The company’s strategy is to achieve durable long-term growth by developing and owning the highest-quality real estate in technology and life science market clusters. The quality of its portfolio is evident from the fact that its average age is just 11 years compared with 30 years for peers,” observed Morningstar’s Suryansh Sharma.

Host Hotels & Resorts (HST) is another REIT holding that checks the value box. And it’s one that could be a contributor to upside for the ETF this year. The same goes for REIT member firm Realty Income (O), which has an impressive track record of dividend growth.

“Coverage ratios are also very high, so tenants are healthy and unlikely to request rent concessions, even during downturns. The steady, stable stream of revenue has allowed Realty Income to be one of only two REITs to be members of the S&P High-Yield Dividend Aristocrats Index and have a credit rating of A- or better. This makes Realty Income one of the most dependable investments for income-oriented investors,” wrote Morningstar’s Kevin Brown.

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