The State Of REITs: June 2018 Edition

Jun. 08, 2018 3:50 PM ETCBL, DTRE, FRI, ICF, IYR, KBWY, LRET, MAC, MRRL, NURE, PFFR, REET, RORE, RVEN, RWR, SCHH, SNR, SRET, USRT, VNQ10 Comments

Summary

  • In May, there was a strong negative correlation between REIT market cap and total return with micro cap REITs significantly outperforming.
  • The REIT recovery grew much stronger in May as all 20 REIT property types generated positive returns.
  • REITs outperformed the S&P 500, DJIA and NASDAQ for the 3rd month in a row.
  • Significant upside potential remains for REITs as the REIT sector still trades at a median 8.59% discount to net asset value (NAV).
  • Hotel REITs continue to outperform with an 11.21% average YTD total return.

REIT Performance

May was the best month for REITs thus far in 2018, with the average REIT returning 5.90%. This outpaced the S&P 500 (+2.16%), Dow Jones Industrial Average (+1.05%) and NASDAQ (+5.32%). After badly underperforming over the first 2 months of the year, REITs have outperformed the broader market in each of the last 3 months. REITs still lag well behind the broader market on total return year to date. This gap could close, however, if REITs continue their strong recovery. In this monthly publication, I will provide REIT data on numerous metrics to help readers identify which property types and individual securities currently offer the best opportunities to achieve their investment goals.


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

In May there was a very strong negative correlation between market cap and total return, with large cap REITs significantly underperforming (+2.55%). Micro cap REITs, on the other hand, yielded a stellar 9.58% return. This very strong month was not enough, however, to overcome the dismal -11.48% average return of micro caps over the first 4 months of the year. As a result, micro cap REITs remain the worst performers YTD, with small cap and mid cap REITs leading.

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

All 20 REIT Property Types Yielded Positive Total Returns in May

The fact that every single REIT property type saw gains in May is truly a testament to the growing strength of the REIT recovery. The extent of these gains, however, varied greatly by property type. Single Family Housing, after a poor performance during the first 4 months, led with a 12.15% total return. Mall REITs, which have suffered in recent quarters from tenant bankruptcies and the “death of retail” media narrative, also saw a strong turnaround with a 9.36% return in May. Timber, which is among the top performers of 2018, tapered off a

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.

Disclosure: I am/we are long UNIT, CBL AND SNR. 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.

Additional disclosure: 2nd Market Capital and its affiliated accounts are long CBL, SNR and UNIT. I am personally long CBL and UNIT. This article is provided for informational purposes only. It is not a recommendation to buy or sell any security and is strictly the opinion of the writer. Information contained in this article is impersonal and not tailored to the investment needs of any particular person. It does not constitute a recommendation that any particular security or strategy is suitable for a specific person. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. The reader must determine whether any investment is suitable and accepts responsibility for their investment decisions. Simon Bowler is an investment advisor representative of 2MCAC, a Wisconsin registered investment advisor. Positive comments made by others should not be construed as an endorsement of the writer's abilities as an investment advisor representative. Commentary may contain forward looking statements which are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MCAC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts and findings in this article. Although the statements of fact and data in this report have been obtained from sources believed to be reliable, 2MCAC does not guarantee their accuracy and assumes no liability or responsibility for any omissions/errors.

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