Amid the height of the winter season, many homebuyers and sellers are having warm thoughts about the housing market amid the recent mortgage rate reduction. This development suggests a possible resurgence in the real estate market in the foreseeable future.
Therefore, real estate stocks Hang Lung Properties Limited (HLPPY) and Guild Holdings Company (GHLD) could be wise portfolio additions, given their solid growth trajectory and profitability. Conversely, investors could hold CBRE Group, Inc. (CBRE) and wait for a better entry point in the stock.
During the earlier stages of the inflationary cycle, the Federal Reserve introduced aggressive interest rate hikes. However, as inflation begins to decelerate and approaches its official 2% target, housing economists anticipate that the end of this tightening cycle may be in sight.
A lack of property inventory, soaring house prices, and escalated mortgage rates deterred many prospective homebuyers in 2023. The current trajectory of monetary policy should reduce mortgage rates, aligning with the onset of the spring housing market surge. Given that the real estate sector is notably reactive to shifts in interest rates, it is well-positioned for potential advancement in the future.
Recent developments in the mortgage rate – witnessing the most rapid reduction in decades – signal a revival within the property market by ushering numerous prospective home buyers back into the fray, thus setting the stage for a market resurgence as we edge toward 2024.
CJ Patrick Company’s founder and CEO, Rick Sharga, forecasts up to 800,000 property transactions during 2024's first quarter, many of which are likely to proceed swiftly from listing to sale in under 25 days. The National Association of Realtors’ chief economist, Lawrence Yun, foresees an uptick to 5.5 million combined new and existing home sales in 2024, up from 4.8 million in 2023.
U.S. single-family homebuilding rose to over an 18-month high in November. It could gain further momentum, with declining mortgage rates coupled with builder incentives likely to entice potential buyers back into the housing market.
Amid the positive macroeconomic developments, builder sentiments are radiating an undeniable optimism. The NAHB/Wells Fargo Housing Market Index recorded a three-point increase in December, reaching a level of 37. The NAHB anticipates ongoing improvements in the future.
Consequently, the global real estate market is projected to reach $5.85 trillion, expanding at a CAGR of 5.2% by 2030.
Given this backdrop, it's time to examine the fundamentals of the three stocks within the Real Estate Services industry, starting with the third in line.
Stock #3: CBRE Group, Inc. (CBRE)
CBRE operates as a commercial real estate services and investment company worldwide. It operates through three segments: Advisory Services; Global Workplace Solutions; and Real Estate Investments segments.
On December 14, CBRE announced the Fund's monthly distributions for December 2023 of $0.13 per common share. The fund's current annualized distribution rate is 11.80% based upon the closing price of $12.71 on December 12, 2023, and 10.07% based upon the fund's closing NAV of $14.90 as of the same date.
The company repurchased approximately 6.2 million shares for $516 million ($83.03 average price per share) during the third quarter of 2023. There was roughly $1.5 billion of capacity remaining under the company’s authorized stock repurchase program as of September 30, 2023.
CBRE’s trailing-12-month asset turnover ratio of 1.49x is significantly higher than the industry average of 0.13x. Its trailing-12-month ROCE, ROTC, and ROTA of 7.55%, 5.02%, and 2.72% are 142.4%, 141.7%, and 95.6% higher than the industry averages of 3.12%, 2.08%, and 1.39%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 9.1% and 8.7%, respectively, while its EBITDA grew at 4.3% and 3.1% CAGRs over the same periods.
In the fiscal third quarter that ended September 30, 2023, CBRE’s total revenue increased 4.5% year-over-year to $7.87 billion, while operating income stood at $269.44 million. Moreover, its core EBITDA stood at $435.60 million.
For the same quarter, adjusted core net income attributable to CBRE and adjusted core income per share attributable to CBRE stood at $225.93 million and $0.72, respectively.
Street expects CBRE’s revenue for the fiscal fourth quarter ending December 2023 to increase 3.2% year-over-year to $8.46 billion. Its EPS is expected to be $1.20. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 35% over the past nine months to close the last trading session at $93.64. Over the past three months, it has gained 27.4%.
CBRE’s fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth. Within the Real Estate Services industry, it is ranked #11 out of 41 stocks.
To see additional POWR Ratings for Value, Momentum, Stability, Sentiment, and Quality for CBRE, click here.
Stock #2: Hang Lung Properties Limited (HLPPY)
Headquartered in Central, Hong Kong, HLPPY engages in the property investment, development, and management activities in Hong Kong and Mainland China. It operates through Property Leasing and Property Sales segments.
On December 14, HLPPY announced that Center Residencies in Wuxi, a new project under its premium serviced residencies brand, held a topping out ceremony, marking a pivotal milestone for Center 66 Phase 2 development. This should bode well for the company.
On October 30, HLPPY commenced the pre-sale of its first hotel-branded project, Grand Hyatt Residences Kunming, under its premium serviced residences brand, Hang Lung Residences. This launch is an integral part of HLPPY’s long-term strategy to deepen its commitment to customer-centricity while leading the “Pulse of the City.”
On September 29, 2023, the company paid an interim dividend of HK18 cents per share to the shareholders. It has a record of paying dividends for 30 consecutive years.
Its annualized dividend rate of $0.23 per share translates to a dividend yield of 3.43% on the current share price. Its four-year average yield is 4.99%. HLPPY’s dividend payments have grown marginally over the past three and five years.
HLPPY’s trailing-12-month cash from operations of $580.14 million is 137% higher than the industry average of $244.82 million. Its trailing-12-month EBIT and net income margins of 65.41% and 41.51% are 219% and 337.6% higher than the industry averages of 20.50% and 9.49%, respectively.
Over the past three and five years, its total assets grew at CAGRs of 2.7% and 2.6%, respectively, while its EBITDA grew at a 5.8% CAGR over the past three years.
In the six months that ended June 30, 2023, HLPPY’s revenue stood at HK$5.24 billion ($670.49 million), while profit from operations after changes in fair value of properties increased 18.1% year-over-year to HK$3.77 billion ($482.67 million).
For the same period, net profit attributable to shareholders increased 22.9% from the year-ago period to HK$2.39 billion ($306.50 million), while earnings per share based on underlying net profit attributable to shareholders stood at HK$0.49.
Street expects HLPPY’s revenue in the fiscal year ending December 2023 to increase 6% year-over-year to $1.40 billion. Its revenue for the fiscal year 2024 is expected to reach $1.85 billion, indicating a 32% rise year-over-year.
The stock has gained 1.5% over the past three months to close the last trading session at $6.69.
HLPPY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
HLPPY has a B grade for Stability. Within the same industry, it is ranked #3.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, Sentiment, and Quality. Get all ratings of HLPPY here.
Stock #1: Guild Holdings Company (GHLD)
GHLD originates, sells, and services residential mortgage loans in the United States. It operates in the Origination and Servicing segments.
GHLD’s trailing-12-month gross profit margin of 100% is 65.6% higher than the industry average of 60.37%, while its trailing-12-month asset turnover ratio of 0.23x is 10.1% higher than the industry average of 0.21x.
During the three months ended September 30, 2023, the company repurchased and subsequently retired 87,087 shares of its Class A common stock at an average purchase price of $11.74 per share. As of September 30, 2023, $12.3 million remained available for repurchase under the company’s share repurchase program.
GHLD paid a special cash dividend of $0.50 per share in the third quarter that ended September 30, 2023.
In the fiscal third quarter that ended September 30, 2023, GHLD’s net revenue and adjusted EBITDA increased 8.6% and 166.1% quarter-over-quarter to $257.26 million and $43.90 million, respectively.
For the same quarter, adjusted net income and adjusted earnings per share stood at $29 million and $0.48, up 222.2% and 220% from the previous quarter, respectively.
Street expects GHLD’s revenue for the fiscal fourth quarter ending December 2023 to increase 26.6% year-over-year to $170.05 million. Its EPS is expected to be $0.14.
The stock has gained 53.3% year-to-date to close the last trading session at $14.86. Over the past nine months, it has gained 46.8%.
GHLD’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
GHLD has an A grade for Sentiment and a B for Growth and Quality. It is ranked first within the same industry.
Click here for the additional POWR Ratings for GHLD (Value, Momentum, and Stability).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CBRE shares were unchanged in premarket trading Thursday. Year-to-date, CBRE has gained 21.67%, versus a 26.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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