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The State Of REITs: March 2018 Edition



  • REIT performance year to date has varied dramatically by market cap, property type and individual security, presenting relative value opportunities.
  • Fearful investors panicked and sold at much higher than average volumes.
  • REITs with smaller market caps presented higher liquidity challenges to fearful investors.
  • There has been a strong positive correlation between market cap and year to date total return for REITs.
  • Timber is the only REIT property type with a positive YTD total return.

Although the REIT sector (to a much greater extent than the broader market) has collectively sold off to lower multiples, the magnitude of declines were not consistent across property types or among stocks within each property type. As a result, this represents a terrific opportunity to evaluate current valuations and rebalance accordingly. Significant and varied changes in price always present opportunities to capitalize on temporary shifts in relative valuation. For this reason, I will provide data throughout this article that can be used to determine where value opportunities currently exist within the REIT sector.

Source: Graph by Simon Bowler, Data compiled from SNL.com

As can be seen in the graph above, there has been a strong positive correlation between market cap and the total return of REIT securities. During the first 2 months of 2018, smaller capitalization REITs have fallen much farther than their larger cap peers. This result is actually not particularly surprising in such a rapid selloff and can primarily be explained by the differences in liquidity between larger and smaller market cap REIT securities.

Some of the REIT securities that experienced the greatest declines in price during this correction were those that presented liquidity challenges due to low trading volume. A large market order placed on a stock with low trading volume can lead to a much larger change in price than a similar order placed on a stock with high trading volume. As a result, many of the small and micro-cap REITs (which have fewer dollars of shares outstanding than do large cap REITs) fell the most precipitously. This collectively larger decline in share price was not primarily due to some bigger problem with small cap company fundamentals, but rather was in large part the result of scared investors rapidly selling assets to a disproportionately small pool of buyers. It is important to evaluate

This article was written by

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Simon Bowler is the Chief Communications Officer at 2nd Market Capital Advisory Corporation (2MCAC).  2MCAC specializes in the analysis and trading of real estate securities. Through a selective process and consideration of market dynamics, we aim to construct portfolios for rising streams of dividend income and capital appreciation.Our Portfolio Income Solutions Marketplace service provides stock picks, extensive analysis and data sheets to help enhance the returns of do-it-yourself investors.Investment Advisory Services
We now offer a way to directly invest in our Proprietary Investment Portfolio Strategy via REIT Total Return, which replicates our activity in client accounts. Total Return client’s brokerage accounts are automatically invested simultaneously and at the same price when we make a trade in the REIT Total Return Portfolio (also known as 2CHYP).
Learn more about our REIT Total Return Portfolio.Simon Bowler, along with fellow SA contributors Dane Bowler and Ross Bowler, is an investment advisory representative of 2nd Market Capital Advisory Corporation (2MCAC), a state-registered investment advisor.Full Disclosure. All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of the specific person. Please see our SA Disclosure Statement for our Full Disclaimer.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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