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The State Of REITs: June 2020 Edition



  • The REIT sector fell back slightly in May, averaging a -0.38% total return.
  • Micro cap REITs led with a solid return of 3.83%, while small caps badly underperformed with a -4% return.
  • Only 44.44% of REIT securities had a positive total return in May.
  • Infrastructure and Casino REITs led all property types in May, while Shopping Centers and Office saw the largest declines.
  • Large cap REITs are outperforming small caps by more than 23% year to date.
  • This idea was discussed in more depth with members of my private investing community, Retirement Income Solutions. Get started today »

REIT Performance

After May’s -0.38% average total return, the REIT sector has now fallen in 4 out of the first 5 months of 2020. The average REIT has now suffered a painful loss of -27.28% over the first 5 months of 2020. The REIT sector again underperformed the NASDAQ (+6.75%), S&P 500 (+4.53%) and Dow Jones Industrial Average (+4.26%) in May. The market cap weighted Vanguard Real Estate ETF (VNQ) continued to outperform the average REIT in May (+1.73% vs. -0.38%) and has suffered much smaller losses year-to-date (-15.93% vs. -27.28%). The spread between the 2020 FFO multiples of large cap REITs (21.7x) and small cap REITs (10.3x) significantly widened in May as multiples rose an average of 1.1 turns for large caps and fell 3.3 turns for small caps (driven largely by downward 2020 earnings estimate revisions). 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

Micro cap REITs (+3.83%) saw the largest recovery for the 2nd month in a row. Mid caps (+1.18%) and large caps (+0.61%) also continue to recover in May, but small caps (-4.0%) fell sharply. Year to date there has been a very strong correlation between total return and market cap size. Large cap REITs (-11.93%) have thus far in 2020 outperformed micro caps (-38.51%) by more than 2600 basis points.

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

11 out of 20 Property Types Yielded Positive Total Returns in May

For early access to The State of REITs and more of our research, data and analysis as well as access to our two real-money high yield REIT portfolios, you can subscribe to a free 14-day trial to our Seeking Alpha marketplace: 2MC Retirement Income Solutions.

This article was written by

Simon Bowler profile picture

Simon Bowler is the Chief Communications Officer at 2nd Market Capital Advisory Corporation, a Wisconsin-registered investment advisor specializing in the analysis and trading of real estate securities. Simon and his team are fiduciaries with over 50 years of collective experience as professional REIT analysts and asset managers.

They lead the investing group Portfolio Income Solutions where they convey REIT investment ideas through access to their actively managed portfolio, continuously updated spreadsheets, and extensive analysis. Stock selections in Portfolio Income Solutions utilizes discount to fair value, price dislocations, and arbitrages to achieve enhanced return potential. Learn more.

Analyst’s Disclosure: I am/we are long MAC & FPI. 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 MAC & FPI. 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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Comments (10)

MarketTalk profile picture
Simon, many have counted out FPI but compared to LAND, could be nice upside from here and possibly trade closer to NAV. Respectfully, the "noise" aside from FPI and recent happenings-- want to move away here and focus instead on potential. Any thoughts appreciated. Thanks in advance.
Simon Bowler profile picture
FPI and LAND both have excellent management teams and are both great companies. At current pricing, however, I agree that FPI does have more upside potential given the significant discount to NAV. Even if FPI still trades at a 20% discount a year from now, it would result in a sizeable total return off of today's share price.
I thought many of the "high yielding" reits have already cut their dividends to 0?
A very useful analysis of a large dataset of Equity REITS. This is absolutely a goldmine for users willing to dig deep and do due diligence to find the best value. Very valuable information. You earn my "followership" and "likes".
In the days of zero commish and fractional shares, buy 1 share over all your favs alllows you to build your own ETF with no fee friction. Those ETF guys add no value other than diversity.
Nathaniel_Chambers profile picture
Just entered into CTRE & OHI today, I had no idea the NAV premiums were that high. I'll have to average down if the opportunity arises
Other Side Of Trade profile picture
Yes, an enormous amount of data, much of it 'out of date.' Just a quick look revealed many REITs that had cut their dividends, but not reflected properly in the charts. Proceed with caution.
the charts do show the dates at the top
jgrever621 profile picture
What an enormous amount of data. This enables one to view the entire REIT universe as to the effects of the virus shutdowns. Very helpful.

Like most investors, I am down about 8-10% in monthly dividend income; until now has been less, but June hasn't been kind.

Still, ALL of these fortunately seem financially sound, and are expected to recover without major impairment to valuations. We'll see.
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