Editor’s Note: Welcome to the May Edition of The REIT Sheet. Thanks for reading, and don’t forget our monthly webchat on Wednesday May 25. It’s your opportunity to ask about any and all REITs, including any I’m not covering here. –RC
REITs’ 2022 selloff has picked up speed since our April update. Thus far in 2022, the iShares US Real Estate ETF (NYSE: IYR) is now underwater by -17.3 percent, or -17 percent including dividends paid.
Here’s how the 10 largest holdings in the iShares ETF have fared year-to-date, along with their most recent weightings:
- American Tower Corp (NYSE: AMT)—8.421%, down -14.25%
- Prologis Inc (NYSE: PLD)—6.706%, down -27.97%
- Crown Castle Int’l (NYSE: CCI)—5.961%, down -10.57%
- Equinix Inc (NSDQ: EQIX)—4.442%, down -20.82%
- Public Storage (NYSE: PSA)—3.614%, down -14.01%
- Realty Income Corp (NYSE: O)—2.912%, down -4.72%
- Welltower Inc (NYSE: WELL)—2.903%, up 3.69%
- Digital Realty (NYSE: DLR)—2.816%, down -23.82%
- Simon Property Group (NYSE: SPG)—2.707%, down -31.52%
- SBA Communications (NSDQ: SBAC)—2.69%, down -13.75%
This ETF is structured to mirror the performance of the Dow Jones’ U.S. Real Estate Capped Index. And as is generally the case with proprietary indexes, components and weightings shift throughout the year. That’s why the ETF’s actual performance is several percentage points worse than the year-to-date average of its top 10 holdings.
The clear takeaway from results so far is the worst damage in 2022 has been in the larger REITs included in popular sector indexes and therefore ETFs. That’s been the rule for selloffs in this heavily segmented, indexed and ETF’d stock market. And it’s why we’ve been so cautious this year up to now on entry points for the biggest REITs on our recommended list after 2021’s big run-up.
Blue chip apartment REIT AvalonBay Communities (NYSE: AVB), for example, reached a high point of over $259 last month. Last week, shares actually dropped below our highest recommended entry point of $200.
Almost all REITs this year have to some extent been victims of the same narrative: That rising recession risk in the US will derail the past few quarters’ surge in property rents, occupancy and collection rates. And the selling has extended to the less picked over REITs on our recommended list posted at the end of this report, which though faring better than the iShares ETF are nonetheless underwater this year by about -12 percent….