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

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Weekly REITCap: Portfolio Managers Guide to PropertyREITs – September 23, 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 September 22, the MSCI US REIT Index (RMZ) return was +3.9% versus the S&P 500 return of +1.4%. The NASDAQ was +1.7%, the DJIA was +1.0%, the Russell 2000 was +3.0%, the DJ Utilities were +4.5%, and the S&P Financials were +0.6%.

  • The best-performing REIT subsectors last week were Industrial (+5.3%), Triple-Net Lease (+5.1%), and Student & Manufactured Housing (+5.0%), while the worst were Single-Family Rentals (+0.2%), Hotels (+1.7%), and Regional Mall (+2.6%).

  • The best-performing REIT stocks last week were GEO (+14.4%), DOC (+8.3%), and UHT (+8.1%), while the worst were CBL (-2.7%), PEB (-1.7%), and CUZ (-0.7%)..

  • YTD REITs are now outperformingthe S&P 500 by 560bps. The REIT sector is now +13.9% in 2016, while the S&P 500 is +8.2%, both on a total return basis. YTD the Russell 2000 total return is +11.2%, the NASDAQ is +6.6%, the DJIA is +5.6%, the DJ Utilities are +20.5%, and the S&P Financials are +2.2%.

  • The best-performing REIT subsectors YTD are Triple-Net Lease (+33.9%), Industrial (+32.3%), and Healthcare (+23.6%), while the worst are Storage (-8.4%), Single-Family Rentals (+2.6%), and Apartments (+3.0%).

  • The best-performing REIT stocks YTD are SNH (+68.0%), GOV (+60.5%), and NXRT (+58.8%), while the worst are CXW (-36.3%), NYRT (-17.2%), and FPO (-15.2%).

  • Over the past 12 months, the REIT sector total return is +22.5%, while the S&P 500 is +14.6%. Over the last 3 months, the REIT sector total return is +4.4%, while the S&P 500 is +4.9%.

  • The US is outperformingmany of the major global real estate markets YTD. The YTD US REITtotal return of +13.9% compares to -0.6% for Europe, +10.7% for Asia, -8.7% for the UK, and +11.8% for Australia.

  • REIT sector’s average cash dividend yield is 3.7%. This compares to the average yields on the 10-year Treasury (1.6%) 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, MNR and TIER. We also like MAA and NNN among the mid-cap names, and AIV, EQR, and O among the large-cap REITs.

  • We have MNR management on the road next week.

  • No changes to our earnings and fair value estimates this week.

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