REITs: Strong Business Results and Cheap Stocks
Editor’s Note: Happy Thanksgiving and welcome to the November REIT Sheet. Top fresh money buys are W.P. Carey Inc (NYSE: WPC) for the more conservative and UDR Inc (NYSE: UDR) for the more aggressive.
Live Members-only Webchat: Please make plans to join us on Thursday November 30 starting at 2 pm. We look forward to seeing you there!–RC
In late October, real estate investment trusts hit their lowest point since the pandemic selloff of early 2020. Then suddenly, they reversed field with the sector’s strongest three-week rally this year.
As a result, the S&P 500 Real Estate Investment Trusts Sector Index is back to nearly breakeven for the year including dividends. That’s a major outperformance of dividend stock benchmark iShares Select Dividend ETF (NYSE: DVY), which is still underwater by -6.2 percent and in turn is slightly ahead of the other widely watched dividend stocks index—the Dow Jones Utility Average—at –7.8 percent.
Our diversified and yield-focused Recommended REITs list is now at a -7.87 percent year to date loss. We are 16 percentage points ahead of our benchmark since the inception of this service in late 2019. And our average yield of 5.21 percent compares to 3.95 percent for the S&P 500 REIT Index.
The popular explanation for REITs’ rebound is a growing consensus that inflation is coming under control, and that the Federal Reserve is therefore finished raising interest rates. That in turn has supposedly increased odds of a soft landing for the economy, and as a result decreased risk of another big selloff for stocks.
For once, I actually agree…
REITs: In Q3 Results and Guidance Seek Resilience
Editor’s Note: Welcome to the October REIT Sheet. Top fresh money buys are Prologis Inc (NYSE: PLD) for the more conservative and Equity LifeStyle Properties (NYSE: ELS) for the more aggressive. I’m also removing Crown Castle Inc (NYSE: CCI) from the Recommended List, and reiterating my buy recommendation for WP Carey Inc (NYSE: WPC) in advance of the spinoff/sale of its remaining office properties at the end of the month.
This month’s live members only webchat will be Thursday October 26 starting at 2 pm. Also, on October 29th and 30th I’ll be presenting and meeting readers at the Orlando MoneyShow. To attend, call 800-970-4355, M-F, 9-5:30 PM ET. See you there!–RC
It’s been about a month since the last REIT Sheet. And we’ve seen yet another reversal of fortune for the S&P 500 Real Estate Investment Trusts Sector Index, moving from black to red by –8.36 percent for calendar year 2023. The dividend stock benchmark iShares Select Dividend ETF’s (NYSE: DVY) is deeper in the red at -9.2 percent. And the other widely watched dividend stocks index—the Dow Jones Utility Average—is even lower at -12.88 percent.
As for our diversified and yield-focused Recommended REITs list, we’re still lagging big REIT indexes so far in 2023 with a -13.61 percent year to date loss. But we are still 17 percentage points ahead of our benchmarks since the inception of this service in late 2019.
The primary catalyst for REITs’ downside the past few weeks is what’s been dragging down stocks and bonds in general, and income stocks in particular. That’s Federal Reserve intentions to leave benchmark interest rates “higher for longer.” The central bank did not raise in September and appears unlikely to this month. But a number of governors have also made it clear more hikes will be forthcoming if needed to bring inflation under its target of 2 percent, regardless of risk to the economy.
The Fed’s statements have accelerated the now more than 18-month long selloff in the bond market, already easily the worst since the 1960s and 70s. And the likelihood of higher for longer borrowing costs has triggered a particularly harsh reckoning in stocks of companies for which debt has historically been a key part of capitalization and funding investment—which definitely includes real estate.
In the previous update, I highlighted several similarities between the current stock market and what we saw in 1999. That was the last year in which…
The REIT Sheet – REITs: It’s Looking a Lot Like 1999, But Still a Time for Caution and Patience
Editor’s Note: Welcome to the September REIT Sheet. This month’s issue includes my quarterly REIT ratings table, featuring my latest advice on 85 individual REITs as well as risk ratings, earnings and guidance analysis and a wealth of other information. Top fresh money buys are AvalonBay Communities (NYSE: AVB) for the more conservative and NNN REIT (NYSE: NNN) for the more aggressive.
Don’t forget to mark your calendar for Tuesday September 26 starting at 2 pm, the time of our next live webchat. It’s your best opportunity to ask about all things REITs.
More than halfway through the month of September, the S&P 500 Real Estate Investment Trusts Sector Index is once again slightly in the black for 2023. The dividend stock benchmark iShares Select Dividend ETF’s (NYSE: DVY) is still in the red -4.27 percent. And the other widely watched dividend stocks index—the Dow Jones Utility Average—is down -5.21 percent.
Our diversified and yield-focused Recommended REITs list is still lagging big REIT indexes so far in 2023 with a -3.89 percent year to date loss.
As I pointed out last month, that’s for two main reasons. One, I’ve been avoiding REIT sectors that have been following Big Technology stocks higher this year, the clearest examples being data center operators buoyed by hype about artificial intelligence—though swapping CPUs for GPUs will cut both ways with an enormous expense.
Second, we’re focused on yield with a portfolio average of about 5 percent. In contrast, REIT indexes and ETFs are actually providing very little in the way of cash payouts. The popular iShares U.S. Real Estate ETF, for example, yields just 1.87 percent. And quarterly payouts continue to be highly erratic, with the June payment of 39.6 cents following March’s 45 cents and December’s 78.4 cents.
That’s not going to help much if one of your primary objectives is income. But the more important reason to stick with our safety-focused, value and yield seeking approach is it simply works better over a period of time that’s meaningful to investors. Mainly, the REIT Sheet Recommended List is 20 percentage points ahead of the iShares ETF and S&P REIT Index since inception at the end of 2019.
There’s also the fact that this stock market is starting to look a lot like 1999...
The REIT Sheet – First Rate REITs are Prepared and Priced for Recession: But Now’s Still the Time for Patience
Editor’s Note: Welcome to the August REIT Sheet. This month’s focus is again on the Recommended REITs list, highlighted in the table attached to this report. Top fresh money buys are Boston Properties (NYSE: BXP) for the more conservative and Smartcentres (TSX: SRU-U, OTC: CWYUF) for the more aggressive.
Don’t forget to mark your calendar for Tuesday August 29 starting at 2 pm, the time of our next live webchat. It’s your best opportunity to ask about anything in our now 86 member REIT Sheet coverage universe. –RC
The S&P 500 Real Estate Investment Trusts Sector Index headed sharply lower this past month as is now underwater by roughly -1 percent including dividends. The dividend stock benchmark iShares Select Dividend ETF’s (NYSE: DVY) is now underwater -6.2 percent, while the Dow Jones Utility Average is down about -7 percent year to date.
Our Recommended REITs list also lost ground this past month and is now sitting at a –6.5 percent year to date loss. That’s in large part because I’m considerably more focused on yield that the S&P REITs: 5.06 percent versus 1.92 percent for the iShares US Real Estate ETF, the leading sector ETF.
I also don’t hold any data center REITs, which remain popular despite high valuations and growing business uncertainty. Digital Realty Trust (NYSE: DLR), for example, cut its 2023 guidance as costs continue to rise faster than revenue, especially utilities (up 67.8 percent) and interest expense (up 61 percent). And while data storage and artificial intelligence growth does present opportunity, it’s hard to see relief on either energy or borrowing costs in the second half of 2023.
The REIT Sheet Recommended List is still up 31.79 percent since inception in December 2019, versus a -1.84 percent loss for the iShares ETF. And I fully expect a value plus dividends approach to return to outperformance in coming months, both in the REIT space and the broader stock market.
At this point, however, investors who hunt value and yield need to be prepared for more downside…
Issue #90 | Metals: For Copper Is the Journey That Counts
Although we first recommended copper here four years ago, it was not until 2021 that we identified it as one of the main metals to benefit from the ongoing move toward decarbonization.
As long-term readers may remember, we are not in the camp that believes the “Net zero by 2050” campaign will be successful. We still think that the goals are too ambitious and the road map not well thought out. Moreover, it’s based on a multitude of simplistic assumptions as to how the real world and its economies work.
China, which is far ahead in this game, has a net zero target by 2060. This should be taken as the best-case scenario and more achievable, even though we still think it is fairly ambitious.
Why is China our standard for reasonable analysis of decarbonization? Mainly because its investment in the energy transition currently represents around 50 percent of the world’s total. This number becomes more impressive still when one considers the world’s second largest economy represents no more than 18 percent of the global GDP.
The REIT Sheet – REITs are Cheap but Mind the Risks
Editor’s note: Welcome to the June REIT Sheet. This month’s top fresh money buys are Kimco Realty Corp (NYSE: KIM) for the more conservative and Gaming and Leisure Properties (NSDQ: GLPI) for the more aggressive.
Please also make plans to join us on Thursday June 29 starting at 2 pm for our monthly Capitalist Times webchat. It’s your best opportunity to ask about all things REIT!–RC
The S&P 500 Real Estate Investment Trusts Sector Index is back to breakeven for calendar year 2023. That’s well behind the S&P 500’s 13.6 total return. But it is better than most income generating alternatives, including benchmark iShares Select Dividend ETF’s (NYSE: DVY) with a -5.8 percent loss and the Dow Jones Utility Average at -4.5 percent.
Most REITs posted strong operating and financial numbers in Q1. And management guidance indicates more of the same for Q2 results we’ll see starting in late July. The primary headwind for this capital intensive sector, not surprisingly, has been rising interest rates. Industrial properties owner Highwoods Properties Inc (NYSE: HIW) is the latest otherwise healthy firm to take a big hit to FFO. But with rates remaining elevated, it’s unlikely to be the last. And Redwood Trust Inc’s (NYSE: RWT) -30 percent dividend reduction demonstrates the still-building pressures on financial REITs.
Other REITs are feeling pain from weaker business conditions. Office Properties Income Trust (NYSE: OPI), for example, cut its dividend by -55 percent and Vornado Realty Trust (NYSE: VNO) eliminated its payout entirely in the last month—just the latest victims of what’s become an historic realignment in the office property market.
I’ve generally recommended avoiding the office and financial REIT sectors for some time, with the notable exceptions of life-sciences-focused Alexandria REIT (NYSE: ARE), high-quality Boston Properties (NYSE: BXP) and energy niche financial REIT Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI).
But even the highest quality REITs would likely head lower in a general stock market selloff. And that will almost certainly be the result if the US economy slides into a recession.
To be sure, the global economy including the US has been very much a half empty/half full proposition this year. On the one hand, there’s been no full-on collapse. On the other, there are multiple signs of weakness, including in the commercial real estate sector as recently noted in comments by Federal Reserve Chairman Powell. Also worrisome: The less than stellar data coming out of China.
Despite these warning signs, the Fed has made it quite clear…
The REIT Sheet – Recession Fears Batter REITs: But Q1 Results Say They’re Ready
Editor’s note: Welcome to the May 2023 issue of The REIT Sheet.
This month, I’m keeping it conservative with our First Rate REITs list. The Conservative pick for fresh money is Alexandria REIT (NYSE: ARE). The Aggressive pick is Simon Property Group (NYSE: SPG). Expect the full data bank of all the REITs in our coverage universe with the June issue.–RC
The S&P 500 Real Estate Sector Index is lower by -2.38 percent including dividends so far in 2023. That’s now badly lagging the full S&P 500 (up 10.27 percent), which is being pulled higher by handful of tech names associated with artificial intelligence (AI) that dominate the Nasdaq 100 (up 31.7 percent).
The REIT index is solidly outperforming the iShares Select Dividend ETF’s (NYSE: DVY) -8.3 percent loss. The ETF is commonly used as a benchmark for dividend equity portfolios. And it’s ahead of the Dow Jones Utility Average’s -6.26 percent as well.
Look a little deeper, however, and you’ll see a REIT sector that’s overall come under increasing pressure this spring…
Please click here to download your new REIT Sheet update in PDF format.
The REIT Sheet – Recommended REITs: Cutting Risk Ahead of Q1 Results
Editor’s note: Welcome to the April 2023 issue of The REIT Sheet. You’re also cordially invited to join our Capitalist Times monthly live webchat, starting at 2 pm on Thursday, April 27. It’s your opportunity to ask anything about anything to do with REITs, including companies we don’t yet track in the data bank.
This month, I’m getting a bit more conservative with our First Rate REITs list. I’m adding communications infrastructure REIT Crown Castle Inc (NYSE: CCI) and self-storage REIT CubeSmart (NYSE: CUBE). I’m taking out Artis REIT (TSX: AX-U, OTC: ARESF) and KKR Real Estate Finance Trust (NYSE: KREF). –RC
The S&P 500 Real Estate Sector Index is up 1.36 percent including dividends so far in 2023. That’s still lagging the full S&P 500 (up 8.09 percent), which is riding on the coattails of handful of big tech names that dominate the Nasdaq 100 (up 19 percent). And it’s slightly ahead of the iShares Select Dividend ETF’s (NYSE: DVY) -1.16 percent loss, as well as the Dow Jones Utility Average (up 0.83 percent).
With the economy slowing and recession risk rising, however, some wide performance divergences have opened up in our REIT Sheet coverage universe—which I presented in full with the databank earlier this month. Some REITs are down as much as 50 percent so far this year, while others are firmly in the black.
That kind of action is likely to continue into the summer. And at the root of recession concerns is the Federal Reserve’s relentless pressure on the financial system over the past year.
It’s hard to believe now that just a little over a year ago the key Fed Funds rate was basically zero. Now it’s approaching 5 percent. And from all indications, the central bank is set for another boost of at least 25 percentage points at its May meeting, with several voting members of the Federal Open Market Committee apparently inclined to keep boosting throughout the summer.
The Fed Funds futures market is still pricing in meaningfully lower rates in the next 12 months. The problem is that’s far more likely to be the result of a recession than a central bank victory over inflation…
The REIT Sheet: REIT Bargains Emerging But Easy Does It
Editor’s note: Welcome to part two of your REIT Sheet issue for March/April. This issue of TRS contains the updated version of our entire REIT databank, which currently tracks 85 companies. It’s still in build mode and I welcome reader suggestions for inclusion. I’m also featuring Alexandria REIT (NYSE: ARE) for conservative fresh money and Simon Property Group (NYSE: SPG) for the more aggressive.–RC
The S&P 500 Real Estate Sector Index got out of the gate quickly in 2023, closing February 2 with a year-to-date
gain of 13.11 percent. That wasn’t nearly enough to reverse the Index’s 2022 loss of -26 percent including dividends paid. Nor was it enough to move us out of the cautious stance in which we ended last year.
As it’s turned out, REITs’ surge was largely a false breakout. Since early February, the index has dropped a little over -10 percent, cutting its year-to-date gain to a little over 1 percent. And as our table “Top and Bottom Performing REITs in Q1 2023” highlights, quite a few REITs have done far worse.
In the most recent REIT Sheet update, I stated the view that despite being still solid on the inside, even the highest-quality REITs would likely head lower in an overall stock market slide. We still want to own them. But we also want to stay cautious with fresh money.
I’m going to repeat that advice here. The Federal Reserve appears to have at least temporarily quelled what at one time appeared to be a budding banking crisis—largely because the Biden Administration has demonstrated that it will act to bail out any financial institution it deems would present systemic risk by failing.
But so long as the Fed continues squeezing the economy by driving up interest rates, they’re going to expose weak points. And in the meantime, they’re going to depress investment by driving up the cost of money for all but the best placed individuals and corporations.
As I’ve also pointed out, the central bank crimping investment now all but assures inflation will be higher than ever when it eventually reverses course. And that will be a major upside driver for our favorite REITs, since inflation while the economy is growing pushes up the value of property and rents…
The REIT Sheet: REITs Take a Hit But Better Times Ahead
Editor’s note: Happy spring everyone and welcome to the March 2023 issue of The REIT Sheet. I’ve split this month’s edition into two parts. This one focuses on the macro as well as our top recommendations, highlighted in the table at the end of report “First Rate REITs. The second piece will post next week and will include our sector-by-sector discussion, as well as the comprehensive data bank of 85 REITs. You’re also cordially invited to join our Capitalist Times monthly live webchat, starting at 2 pm on Tuesday, March 28.
I’m highlighting AvalonBay Communities (NYSE: AVB) as my top pick now for more conservative investors. National Retail Properties (NYSE: NNN) is currently my best idea for the more aggressive. –RC
A month ago, I noted REITs were off to a flying start in 2023. That’s now decidedly past tense.
The S&P 500 Real Estate Sector Index has followed the broad stock market lower, turning what was once a low teens percentage return into a loss of around -2 percent. That lags a 4.2 percent positive return for the full S&P 500, which is being propped up by a handful of big tech names. The Nasdaq 100 those companies dominate is up more than 16 percent year to date, though the index is still down by -21 percent since the beginning of 2022.
The REIT index is outperforming the iShares Select Dividend ETF (NYSE: DVY), still the benchmark for income-oriented equity portfolios and down roughly 4.1 percent year to date. And it’s ahead of the Dow Jones Utility Average (down -5.1 percent) as well. But the momentum has decidedly shifted to the negative across the board. And were it not for the presence of more tech-oriented REITs like global data center operator Equinix Inc (NSDQ: EQIX), the REIT index would be markedly lower for the year.
My list of “First Rate REITs” is intentionally diversified across multiple property sectors. Our strategy is still 35 percentage points ahead of the more concentrated REIT Index over that time. So far this year, however, we’re underwater about -5 percent, which is a couple of percentage points worse.
The biggest reason is we have exposure to the two property sectors that have performed the worst this year, as they’re at least perceived as most exposed to elevated risk of a recession. That’s office properties and financial REITs.
The REIT Sheet: What REITs’ Q4 Earnings Portend for 2023 Returns
Editor’s Note: Welcome to the February 2023 issue of The REIT Sheet. This month’s top picks are Mid-America Apartment Communities (NYSE: MAA) for the more conservative, and Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI) for the more aggressive. Please join us for this month’s live webchat on Tuesday, February 28. We start at 2 pm and continue so long as there are questions left in the queue. It’s your best opportunity to ask about all things REITs. Thanks for reading! –RC
So far in 2023, REITs are off to a flying start. The average year-to-date return for my 19 Recommended REITs listed in the table at the end of this report is 8.27 percent, as of the February 16 close. The S&P 500 Real Estate Sector Index is up 7.7 percent, narrowly ahead of the S&P 500’s 6.8 percent and substantially better than either the Dow Jones Utility Average’s -2.1 percent and the benchmark iShares Select Dividend ETF (NYSE: DVY) at 3.2 percent.
I continue to recommend a REIT investment strategy based around following three rules:
- Stick to the best in class. Always move on when the underlying business of a particular REIT weakens and never overload on a single REIT.
- Invest fresh money only when prices are below my highest recommended entry points. Also, consider taking positions in increments rather than all at once and look to load up on dips to Dream Buy levels.
- Be willing to take profits occasionally, if a REIT’s price rises 25 to 30 percent above my highest recommended entry point.
REITs’ ability to build on early 2023 gains depends on business quality. And no single factor is more important than what happens to dividends. Will management be able to build on the increases of the past couple years? Or will souring economic conditions force the even better run REITs to throttle back, and the weaker to cut as they did in 2020?
The answer to what happens to dividends obviously will depend heavily on…
The REIT Sheet: What to Expect for REIT Dividends in 2023
Editor’s Note: Welcome to your regular January 2023 issue of The REIT Sheet. This month’s top picks are Kimco Realty Corp (NYSE: KIM) for the more conservative, and Artis REIT (TSX: AX-U, OTC: ARESF) for the more aggressive. Please join us for this month’s live webchat on Tuesday, January 31. We start at 2 pm and continue so long as there are questions left in the queue. It’s your best opportunity to ask about all things REITs.
Thanks for reading!–RC
January 2022 was a decidedly sour month for REITs, as the S&P 500 Real Estate Sector Index skidded -8.5 percent. And that proved to be an ill portent, as the sector finished the full year under water by roughly -26 percent.
So far in 2023, REITs are off to a decidedly better start, with the index closing this week with a positive total return of 6.21 percent. That’s solidly ahead of the S&P 500’s 3.47 percent. And it tops other high yielding stock sectors as well, including the Dow Jones Utility Average’s -0.7 percent and the benchmark iShares Select Dividend ETF (NYSE: DVY) at 1.8 percent.
Can REITs sustain that outperformance in a year where interest rates and recession risk continue to rise? The answer is likely to depend heavily on what happens to dividends. Will the sector be able to build on the growth we saw in 2022? Or will worsening macro conditions force management to retrench, shelving increases and in some cases cutting payouts?
Last month, I highlighted our databank…
Issue #89 The REIT Sheet – REITs Re-Set in 2022: What’s Ahead in 2023
Editor’s Note: Welcome to the end 2022/beginning 2023 issue of The REIT Sheet. This month’s top picks are Mid-America Apartment Communities (NYSE: MAA) for the more conservative, and Farmland Partners Inc (NYSE: FPI) for the more aggressive. Farmland is a new addition to our recommended list. The farming landlord replaces Medical Properties Trust (NYSE: MPW), which we exited per the December 30 TRS update.
This issue of TRS contains the updated version of our entire REIT databank, which currently tracks 86 companies. It’s still in build mode and I continue to welcome reader suggestions for inclusion. Thanks for reading and here’s to a year of opportunity! –RC
The S&P 500 Real Estate Sector Index finished 2022 underwater by -26 percent including dividends paid. That was basically the same performance as the popular real estate investment trust ETF, iShares US Real Estate ETF (NYSE: IYR). Our REIT Sheet Recommended List came in at loss of -13.22 percent.
The REIT Index lagged the S&P 500’s -18 percent return. That’s a stark reversal from 2021, when the sector’s 45.6 percent return handily beat the S&P’s 28.5 percent. And that year in turn was also a turnabout, as in 2020 the S&P gained better than 18 percent versus a more than -2 percent loss for the REITs.
Following that pattern, REITs could be expected to outperform the market averages in 2023. Unfortunately, as I pointed out in the December 30 update, the sector faces the same economic headwinds it did in 2022. In fact, they could get a good deal worse before they subside, as the Federal Reserve continues to push benchmark interest rates higher to rein in what last year was the highest inflation in 40 years.
Through the first half of 2022, for example, most REITs were able to keep a lid on debt interest costs by minimizing refinancing activity, selling properties and throttling back on CAPEX. But as my REIT databank comments indicate, that changed with a vengeance for some in Q3, particularly as the cost of carrying variable rate debt surged. And with large debt maturities approaching for many, rising rates will take a bigger bite out of the Q4 results we’ll start to see later this month—and especially guidance for 2023
Issue #88 | Metals 2023: A Chinese Matter… Again
China now accounts for more than half of global demand for commodities. That makes correctly assessing the direction and the magnitude of Chinese economic growth the biggest piece of the investing puzzle for metals.
Up until the latter part of October, China’s outsized role in global demand had been mostly a negative for metals prices and mining stocks in 2022. But peering into 2023, the country is likely to be the only major economy engaged in meaningful easing of fiscal and monetary policy, while much of the world is tightening.
That’s a very big positive for metals investing. In fact, the expectation here is that the Chinese economy will be in a position to support global growth, domestically picking up speed in the second half of the year as overall consumption accelerates.
One reason we see this as a high probability bet is for the past two years locked in Chinese households have not been spending much. As a result, household bank balances have increased by more than 40 percent since 2020. In terms of dollars, this increase is around US$4.8 trillion—or more than the entire GDP of the United Kingdom.
Issue 87 – The REIT Sheet: Strong Q3 Results Fuel REIT Recovery, But Beware Recession Risk
Editor’s Note: Welcome to the November Edition of The REIT Sheet. This month’s top fresh money buys are Boston Properties (NYSE: BXP) for conservative investors, and National Retail Properties (NYSE: NNN) for the more aggressive. I’ve also restored Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI) to a buy at 35 or less. Medical Properties Trust (NYSE: MPW) remains a hold. Thanks for reading!–RC
A month ago, the S&P 500 Real Estate Sector Index was underwater by -31.4 percent year- to-date, including dividends paid. Seven of my Recommended list REITs traded below Dream Buy prices: Alexandria REIT (NYSE: ARE), Artis REIT (TSX: AX-U, OTC: ARESF), Canadian Apartment (TSX: CAR-U, OTC: CDPYF), Equity Lifestyle Properties (NYSE: ELS), RioCan REIT (TSX: REI-U, OTC: RIOCF) and SmartCentres (TSX: SRU-U, OTC: CWYUF).
What a difference a month can make! Only Artis still sells for less than its Dream Buy price, mainly because the Canadian dollar has remained weak. And most of our favored REITs have rallied hard, several including Alexandria REIT, Prologis Inc (NYSE: PLD) and Simon Property Group (NYSE: SPG) quite robustly.
The S&P REIT sector index is still well underwater for the year, as are many of our holdings. But for the past month at least, REITs have actually outperformed a somewhat resurgent S&P 500.
Federal Reserve Chairman Jerome Powell commented yesterday that he didn’t want to crash the economy through rate hikes. That was enough to set off a sharp rally in the stock market including REITs, as investors took it to mean the central bank would begin tapering off on increases possibly as soon as December.
But the main reason for REITs’ strength over the past month has been on the ground level. Mainly, solid Q3 operating results combined with steady guidance for the rest of the year and beyond have calmed investor fears that the sector could be headed for another 2020 magnitude collapse.
With the Fed driving up interest rates at a breakneck pace to combat a 40-year high in inflation, its no wonder recession risk has been on investors’ minds this year. And memories of the sector crash of 2020 are still quite fresh.
Pandemic pain was felt unevenly across the REIT universe. Industrial REITs actually benefitted from an explosion of e-commerce. But shut down shopping malls triggered a swell of unpaid rents and tenant bankruptcies. Hotel REITs saw traffic evaporate in a matter of weeks. And even historically resilient residential and storage REITs were hit by a flood of vacancies and unpaid rents, coupled with government moratoriums on evictions.
The result was a REIT meltdown that hit nearly every sector and took until mid-2021 to fully recover from. And it included a wave of deep dividend cuts and several bankruptcies.
Count me skeptical that the Fed has tamed inflation, yesterday’s big stock market rally notwithstanding…
Issue 86 – The REIT Sheet: Expect More Downside, But Quality’s Still Worth Accumulating
Editor’s Note: Welcome to the October Edition of The REIT Sheet. This month’s top picks are W.P. Carey Inc (NYSE: WPC) for conservative investors, and Gaming and Leisure Properties Inc (NSDQ: GLPI) for the more aggressive. I’m rating Hannon Armstrong (NYSE: HASI) and Medical Properties Trust (NYSE: MPW) “holds” ahead of their Q3 results and guidance updates.
Please join us for the Capitalist Times monthly webchat Thursday, October 27 starting at 2 pm. It’s your opportunity to ask about anything to do with REITs, including what I haven’t covered here. My partner at CT Elliott Gue and I will also be presenting at the Orlando MoneyShow on Monday, October 31. I hope to see you at these special events. –RC
Real estate investment trusts took another hit last month, largely following the downdraft in overall stock and bond markets. As of the October 19 close, the S&P 500 Real Estate Sector Index is underwater by -31.4 percent year to date, including dividends paid.
If that number holds or worsens over the next 10 weeks or so, it would be the worst annual performance by property stocks since 2008. And while there are half a dozen names in our REIT Sheet coverage universe still in the black, more than twice as many are sitting on year-to-date losses of close to 50 percent.
The bad news is there’s a high probability REIT share prices will sink further this year. And for a good many, the slide may continue well into 2023.
Count me a skeptic of any economic model that forecasts a “100 percent” probability of anything. But Bloomberg Intelligence’s recently issued recession prediction isn’t without reason.
Since the start of Q3, for example, there have been some pretty clear signs that activity is slowing across our coverage universe of 85 leading REITs. So far, they’re mostly showing up in sharply curtailed capital raising activity, with implications for slower growth next year.
In late September, data center REIT leader Digital Realty (NYSE: DLR) issued $550 million of bonds maturing January 15, 2028 with a coupon interest rate of 5.55 percent. Since then, their price has slipped to a discount to par value, with a yield to maturity of 6.1 percent.
A couple weeks later, office property REIT Highwoods Properties (NYSE: HIW) inked a two-year unsecured bank loan at a yield to maturity of about 5 percent—with the potential for up to a percentage point reduction in the rate if certain “sustainability” criteria are met.
Issue 85 – REITs Are Cheap Again: Here’s What We’re Buying
Editor’s Note: Welcome to the September Edition of The REIT Sheet. This month’s top picks are Boston Properties Inc (NYSE: BXP) for the more conservative, and Prologis Inc (NYSE: PLD) for the more aggressive. Both are new additions to our recommended list.
Also, please join us for our monthly Capitalist Times live webchat on Tuesday, September 27 starting at 2 pm Eastern. It’s your opportunity to ask about anything to do with REITs, including what I haven’t covered here. — R.C.
Shares of best in class real estate investment trusts are back on the bargain counter. As of last week’s close, the S&P 500 Real Estate Sector Index is underwater by nearly 26 percent year to date including dividends paid.
That’s actually a good deal worse than the S&P 500 itself, which is down roughly 21.5 percent. In fact, the biggest REIT ETF—iShares US Real Estate ETF (NYSE: IYR)—now has a total return of -1.8 percent since The REIT Sheet launched at the beginning of 2020.
My handpicked list of recommendations is still up a little over 34 percent since inception. But they’ve also taken a big hit this year. And the average yield of the now 20 REITs has risen above 5.2 percent. That’s the highest level to date, and it includes half a dozen paying out well more than 6 percent.
The question is this: Do these lower prices mean signal a buying opportunity for investors in an increasingly battered market? Or are they a sign of worse to come for property, which is clearly perceived by investors as being in the cross hairs of inflation, recession and rising interest rate risks?
The case against REITs and the stock market as a whole now lies largely with the US Federal Reserve. The US central bank—as well as several of its key counterparts around the world—appears to have made a calculated decision that “going Volcker” is its best course to tame the highest inflation in 40 years. That is, following the example of the legendary Fed Chairman of the late 1970s/early 80s– increasing benchmark interest rates at an unprecedented pace and accepting whatever damage there is to the economy and investment markets…
Issue 84: The REIT Sheet – REIT Bargains Built to Weather Recessions
Editor’s Note: Welcome to the June Edition of The REIT Sheet, with current buy/hold/sell advice for our updated databank of 88 individual REITs. Don’t forget our monthly
webchat is June 29 starting at 2 pm. It’s your opportunity to ask about any and all REITs, including any I’m not covering here. Thanks for reading!
So far this year, the benchmark iShares US Real Estate ETF (NYSE: IYR) is underwater by nearly -21 percent. That’s an even worse performance than the largest, most efficient ETFs set up to track the S&P 500, which the popular investment media now proclaims is in a bear market.
In my view, every real bear market in stocks has two salient features. First, losses destroy enough wealth to hit the broad economy. And second, the losses are long lasting enough to cause a meaningful change in investor behavior.
The Financial Crisis and subsequent so-called “Great Recession” of 2007-09 certainly qualified on both counts. So did the bear market that preceded it, which lasted from early 2000 through early 2003.
What we saw in spring 2020 most certainly did not. Mainly, though broad sectors of the economy struggled in the wake of steps taken to control the pandemic, stocks’ steep losses of late February and early March were entirely erased less than two months later. And the only lesson investors “learned” from the experience was to resolutely
buy dips.
What we’ve seen so far this year doesn’t really qualify either, though it certainly could in coming months…
The REIT Sheet Update: Navigating the REIT Selloff of 2022
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….
Issue #83: Where’s the Bottom?
Before I delve into this week’s issue here’s a quick update for the model portfolio and some new recommendations:
Actions to Take:
- Gold miner Newmont Corp. (NYSE: NEM) triggered our recommended stop on close level on April 25th, so as per our methodology in this service, you should be out of the stock as of the morning of April 26th. Based on the volume-weighted average price on the morning of the 26th of $73.05, this sale represents a gain of 19.93% or $735.80 since recommendation on January 24th.
- The iShares Russell 2000 Value ETF (NYSE: IWN) triggered our recommended stop on close on May 9th, leading to its sale on the 10th at a volume-weighted average price of $145.26. The loss since recommendation here is 12.71% or $1,601.92.
- As per my late April flash alert, you should also have booked a 52.10% gain on half your position in the Tuttle Capital Short Innovation ETF ($1,560.20) and you should have added 200 units to the recommended position in the ProShares Ultra Short QQQ ETF (NYSE: QID) at a price of about $22.81.
- Our remaining open recommended positions in both inverse ETFs –QID and SARK referenced above – are now showing sizable gains of 83.4% and 31.1% respectively since initial recommendations in early December of 2021 however, as I explain in this issue, I see the potential for more short-term downside, and I am not recommending you take additional profits on either ETF at this time. Please be prepared, however, as I will likely issue a brief flash alert when the time comes to make an adjustment and book gains.
- I am recommending you add 25 shares to our recommended position in frozen potato company Lamb Weston (NYSE: LW) and 25 shares to your position in Molson Coors (NYSE: TAP) at prices under $70 and $60 respectively, bringing these positions to 100 and 125 shares respectively.
- I am recommending you buy 100 units of the iShares 7 – 10 Year Treasury Bond ETF (NYSE: IEF) at any price under $105.
The S&P 500 is now down about 18% from its all-time high set on January 3rd while the Nasdaq has plummeted just under 30% from its own peak on November 19th and more than 27% year-to-date…