As expectations of interest rate cuts increase, real estate is one of the corners of the market that investors have entered. Markets are betting that this month’s inflation data will provide the Fed with a reason to cut interest rates, as the central bank has repeatedly said that to achieve that goal, consumer prices need to fall. It is widely believed that real estate-related assets, such as real estate investment trusts, benefit from lower interest rates. This is because many investments in this asset class involve leverage and borrowing, and the lower the interest rates, the cheaper it is to hold the investment. The lower interest rate environment also increases the attractiveness of this investment, as properties offer higher rental income yields. But there’s no guarantee – and such real estate assets may also perform well when interest rates are higher. For example, the extent of borrowing costs depends on variables such as debt load and industry type. For those interested in REITs, Morningstar likes the name, saying it’s “cheap” and offers high yields. Morningstar equity analyst Suryansh Sharma said in a July note that the “catalyst for future earnings” is U.S.-listed Kilroy Realty . The company owns, develops and acquires premier office, mixed-use and technology and life science industry-related properties in U.S. cities. Also in July, Dave Sekera, chief U.S. market strategist at Morningstar Inc., named Kilroy as one of four new stocks he was buying “that will be the stocks that will make the move higher going forward.” catalyst”. “Reits have positioned themselves to benefit from the booming life sciences industry, with significant risks in their portfolios and development pipelines,” Sharma said, adding, “We believe that despite remote and hybrid work Solutions will gain increasing acceptance, but offices will remain central to workplace strategies, according to his fair value estimate for Morningstar REIT of $59, which means the REIT is undervalued. He said office tower occupancy will increase over time, which in turn will lead to a revival in demand for office real estate. Sharma expects average rents per square foot for Kilroy’s portfolio to materialize over the next decade. CAGR of 0.9%. He said: “We believe Kilroy’s key developments will deliver yields of around 6.50% by 2033, increase net operating income and make a significant contribution to the company’s valuation. Kilroy’s current dividend yield is about 6%, according to FactSet data. “Longer term, the focus on the technology and life sciences market cluster should benefit Kilroy as we expect strong growth in these areas,” Sharma said. Growth. The company’s high-quality office buildings with good amenities should benefit from the trend toward premium services, but the upside is that Kilroy is one of the “most undervalued” REITs in Morningstar’s coverage. The company leans toward the technology industry. “When we look at employment in the technology industry, it’s growing,” he said. “When we measure job technology positions within specific market segments, some of the largest tech companies, including Apple, Alphabet, Amazon, Meta, and others are asking employees to return to the office and return to hybrid office environments. A minimum of three days per week schedule He also noted that the buildings in Kilroy Life Sciences’ portfolio are only 11 years old — much younger than many of its peers, which means it should deliver better occupancy rates, Sekera said. Investors should note that, overall, continued remote work dynamics across industries will remain a major risk, Erma said. “Remote work dynamics may be the biggest source of uncertainty in the office real estate industry. The epidemic has shown us that, Technology can help employees collaborate and stay productive while working remotely,” he said. “Hybrid workplace policies are now increasingly the norm and pose significant challenges to future office needs.”
