Janney/REITs: Weekly REITCap: Portfolio Managers Guide to Property REITs

REITS

Weekly REITCap: Portfolio Managers Guide to PropertyREITs – October 14, 2016

Our Weekly REITCap Portfolio Managers Guide provides general corporate information, total returns, valuation and balance sheet measures for 150+ property REITs across the major asset types (e.g. office, multifamily, retail, industrial), as well as more esoteric REITs (such as the prisons and towers).

For the week ending October 14, the MSCI US REIT Index (RMZ) return was +1.4% versus the S&P 500 return of -1.3%. The NASDAQ was -1.8%, the DJIA was -0.9%, the Russell 2000 was -2.4%, the DJ Utilities were +1.9%, and the S&P Financials were -1.5%.
The best-performing REIT subsectors last week were Student & Manufactured Housing (+3.8%), Data Centers and Towers (+3.5%), and Triple-Net Lease (+1.9%), while the worst were Single-Family Rentals (+0.0%), Office-CBD (+0.2%), and Apartments (+0.5%).
The best-performing REIT stocks last week were CUZ (+11.5%), DFT (+9.0%), and COR (+7.3%), while the worst were PKY (-19.3%), ALX (-6.4%), and CLDT (-6.0%).

YTD REITs are now outperformingthe S&P 500 by150bps. The REIT sector is now +7.6% in 2016, while the S&P 500 is +6.1%, both on a total return basis. YTD the Russell 2000 total return is +7.0%, the NASDAQ is +4.1%, the DJIA is +3.9%, the DJ Utilities are +13.4%, and the S&P Financials are +1.5%.
The best-performing REIT subsectors YTD are Triple-Net Lease (+25.7%), Industrial (+25.2%), and Data Centers and Towers (+17.8%), while the worst are Storage (-12.0%), Apartments (-4.0%), and Office-CBD (+1.0%).
The best-performing REIT stocks YTD are SNH (+59.0%), NXRT (+44.5%), and ADC (+43.0%), while the worst are CXW (-42.4%), FPO (-19.0%), and NYRT (-16.3%).

Over the past 12 months, the REIT sector total return is +10.3%, while the S&P 500 is +8.8%. Over the last 3 months, the REIT sector total return is -7.5%, while the S&P 500 is -0.4%.
The US is outperforming Europe, but underperforming Asia among the major global real estate markets YTD. The YTD US REIT total return of +7.6% compares to -7.8% for Europe, +8.3% for Asia, -12.5% for the UK, and +10.3% for Australia.
REIT sector’s average cash dividend yield is3.9%. This compares to the average yields on the 10-year Treasury (1.7%) and Moody’s Baa Corporate Bond Index (4.4%).

We remain Neutral on the US Property REITs. With a 10% total return expectation for 2016, we remain Neutral on the US Property REITs, as solid internal growth and continued access to inexpensive and plentiful capital are somewhat offset by strong valuations, greater levels of new supply, and the threat of higher interest rates.
In terms of our subsector views, we are positive on the Multifamily, CBD Office, and Industrial subsectors; neutral on Data Centers, Regional Malls, Self-Storage, Shopping Centers, Student & Manufactured Housing, Tower, and Triple-Net; and negative on Diversified, Healthcare, Hotels, Suburban Office, and Single-Family REITs. Specific company ratings and operating details can be found inside.

Our favorite small-cap REITs are ADC, AHH, CIO, and MNR. We also like MAA and NNN among the mid-cap names, and AIV and O among the large-cap REITs.
We have updated our earnings and fair value estimates this week for CIO and EQR. The reduction in our EQR Fair Value estimate reflects the payment of a $3 special dividend today.