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The State Of REITs: December 2019 Edition



  • The average REIT had a negative monthly total return for just the 2nd time in 2019, with a -0.6% in November.
  • Small-cap REITs outperformed large caps by 266 basis points.
  • Just over half of REIT securities (50.84%) had negative total returns in November.
  • Land and Timber REITs led all property types in November, while Corrections and Healthcare lagged.
  • 92% of large-cap REITs trade at a Price/FFO premium to the average small-cap REIT.

REIT Performance

November was a good month for the broader stock market, but not for the REIT sector, which saw only its 2nd negative month of 2019 (-0.60%). Despite fading slightly in November, the average equity REIT still has achieved a very strong return of 29.13% over the first 11 months of 2019. The REIT sector badly lagged the NASDAQ (+4.5%), S&P 500 (+3.4%) and the Dow Jones Industrial Average (+3.72%) in November. The market cap-weighted Vanguard Real Estate ETF (VNQ) underperformed the average REIT again in November (-1.3% vs. -0.6%), and fell further behind year to date after the first 11 months of the year (+27.91% vs. +29.13%). The spread between the 2020 FFO multiples of large-cap REITs (20.4x) and small-cap REITs (14.4) narrowed in November as multiples fell an average of 0.1 turns for small caps and 0.7 turns for large caps. 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 of 2nd Market Capital, Data compiled from SNL.com. See important notes and disclosures at the end of this article.

For the 3rd month in a row, REIT performance and market cap were negatively correlated. Micro-cap (+1.08%) and small-cap REITs (+0.23%) yielded positive returns, but the average returns of mid-cap (-1.01%) and large-cap REITs (-2.43%) were negative. Micro-cap REITs continue to outperform their larger peers and now average a stellar 40.44% year to date. This disparity of September performance was enough for micro-cap REITs (+34.58%) to overtake large-cap REITs (+31.07%) as the top performers year to date. Mid-cap REITs underperformed again in November (-1.01% vs. -0.60%) and remain behind their peers year to date (+25.28% vs. 28.73%).

Source: Graph by Simon

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 am/we are long CXW & GEO. 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.

2nd Market Capital and its affiliated accounts are long CXW & GEO and short SAFE. I am personally long CXW and GEO. 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.

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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