Industrials, SFR Lead a Mostly Down Week for REITS
REITs are trading at relative multiples last seen in 2020 and 2008-2009.
Industrial was the only positive sector among REITs last week at +1% with single-family rentals (SFRs) (0.3%) next best, according to a new report from BTIG.
REITs overall declined 1% last week, underperforming the broader market indices again as concerns about – what else – the debt ceiling, inflation, and the economy.
Despite the positive shift in estimate revision in Q2, REITs are substantially lagging behind the broader market indices over that same period.
Additionally, rates were up on the week, rising 12 bps for the 10-year Treasury, bringing the quarter-go-date (QTD) increase to 31 bps. Health care (3.2%), hotels (2.9%), and regional malls (2.7%) led declines.
“While the macro environment drives concerns, and weighs on performance, by one measure the fundamental environment might have stabilized in the near-term,” according to the report. “Estimate revisions for the sector have quietly headed in a positive direction in recent weeks.”
REITs are trading at relative multiples last seen in 2020 and 2008-2009, and a substantial yield premium to the S&P 500.
In early April, pre-Q1 earnings, the 3-month trailing estimate revision figure for REITs hit negative 3.93%. Indeed, the monthly estimate revisions were routinely over 1% in the first few months of the year. However, the trailing 3-month estimate revision has improved materially to negative 1.24%.
REIT market participants are showing a desire to shift back to stock-specific return factors, according to the report, as the role of macro remains ever-present.
“REITs are quietly consolidating into a more attractive space once the macro headlines begin to stabilize,” BTIG writes.
BTIG suggests that investors focus on management teams with a clear, value-add thesis that is differentiated from underlying macro forces, track records as “operators” that can derive higher yields from less-sought-after deals, and those with specific catalysts.
This is found in corporate office properties whose tenants are gaining share in countercyclical industries, the report said.