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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.

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…

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.

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…

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

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…

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.