Barron's: REITs are on sale
- Interest rate fears have helped send REITs tumbling over the past few months, with the Vanguard REIT Index ETF (NYSEARCA: VNQ) down from 15% from its July high, and now yielding 4.3% - more than double that of the S&P 500.
- Source: Barron's Andrew Bary
- Notable REITs at 52-week lows include Equity Residential (NYSE: EQR), Macerich (NYSE: MAC), Simon Property Group (NYSE: SPG), and Public Storage (NYSE: PSA).
- Green Street's Mike Kirby: REITs aren't pound-the-table inexpensive, but on the attractive side of fair value. Citigroup: "While there is undoubtedly deceleration in fundamentals ... the REIT sector is in its best shape from a balance-sheet, portfolio, and operations perspective in its history.”
- Negatives include too much apartment supply in formerly hot markets on the coasts, a flattening in Manhattan office rents, and pressure on malls from the boom in e-commerce.
- Even with all that, Kirby sees the industry's AFFO rising 6.3% this year, and 7% in 2017 and 2018. REITs trade at 20x forward AFFO - pricey vs. the S&P 500, but worth it if they produce better profit growth.
- Another valuation method is to look at the cap rates of portfolio properties, and a check finds REITs like Boston Properties (NYSE: BXP), and Simon Property are selling below their private-market values. Why, asks Kirby, would a pension fund or sovereign wealth fund pay a higher price (lower cap rate) for a Manhattan property when they could get a whole portfolio of NYC office buildings at a cheaper valuation by buying SL Green (NYSE: SLG)?
- ETFs: VNQ, IYR, DRN, RQI, URE, SCHH, ICF, RWR, SRS, RNP, RFI, JRS, KBWY, NRO, DRV, RIT, RIF, REK, DRA, FRI, FTY, FREL, LRET, PSR, WREI, XLRE, IARAX, RORE
|
