The Federal Reserve on Thursday announced the much anticipated quantitative easing 3 (QE3). The announcement came amid the release of disappointing macroeconomic data on the U.S. labor market. The U.S. economy created fewer-than-expected jobs in the month of August. The U.S. unemployment rate has remained in proximity to 8%. Under the program, the central bank seeks to purchase mortgage-backed securities worth $40 billion, and keep the interest rates at the prevailing record low levels until the mid of 2015, instead of the previously announced end of 2014 time period. Experts believe this a big stimulus measure taken by the central bank to stimulate the sluggish U.S. economy.
Equity markets across the world have welcomed Ben Bernanke's move. U.S. markets rallied strongly on the news of the announcement of the launch of another round of bond buying by the central bank. The Dow Jones Industrial Average jumped by 1.55%, while the S&P 500 advanced by 1.6%. European markets also followed the trend, with Euro Stoxx 50 up by 2%, German DAX climbed 1.6%, and French CAC advanced 2%, while the FTSE 100 climbed by 1.65%.
Among all the sectors in the U.S., the banking sector remained a big beneficiary, with XLF, the Financial Select Sector EFT up 2.5%, while mining and housing sector stocks also witnessed big positive moves. The remainder of this report will aim to look at the impact of this easing on the U.S. property REITs industry. In particular, we look at United Dominion Realty (UDR), Apartment Investment & Management Co. (AIV) and General Growth Properties (GGP). All of these REITs have a beta above 1, which means they would be positively affected by the rallying broad equity markets.
United Dominion Realty
UDR is a big name in the U.S. residential REITs industry with a market cap of $6.55 billion, and a beta of 1.2. Besides being positively driven by the rallying U.S. equity markets, the company will benefit specifically from increasing rents. Home rents are on the rise, which will benefit residential REITs in generating higher rental incomes. The company owns, develops and operates multifamily apartment communities in regions where there are high barriers to entry.
Apartment Investment & Management Co.
With a market cap of $3.9 billion, we believe the company is poised to benefit from the increased residential rents in the U.S. The company has a beta of 1.23, which means it will also benefit from the movements in the broad U.S. equity markets. The company seeks to invest in quality apartment homes specifically at two geographical locations in the U.S.; the West and East.
Simon Property Group
Simon Property Group is a retail REIT and owns, operates and develops retail shopping malls. Besides owning malls in the U.S., it has operations in Europe and parts of Asia. Earlier in a report, we concluded that its diversified geographical footprint will be a contributing factor in the coming quarter's earnings. The company has a market cap of $49 billion and a beta of 1.5. A positive movement in the broad market will have a greater impact on the stock price of the company.