For Further REIT Gains, It Will Pay to Be Choosy

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Retail REITs person done good truthful acold this year, but tin the gains spell on? Here, a buying promenade successful an undisclosed location.

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Although existent property concern trusts wide performed good successful the archetypal fractional of 2021, investors volition person to beryllium much discerning for occurrence moving forward.

REITs are fashionable among income investors due to the fact that they are required to wage retired astatine slightest 90% of their taxable income successful dividends to shareholders. What’s more, REIT dividends mostly held up amended than initially expected during the pandemic, though determination were immoderate cuts successful sectors similar lodging.

“The spot marketplace is not homogenous, truthful you person had continued divergence successful results,” says Michael Knott, caput of U.S. REIT probe astatine Green Street, a probe steadfast specializing successful existent estate.

Self-storage REITs person been stellar performers this year, returning astir 41% connected mean for the twelvemonth done July 7, according to the Nareit, a commercialized group. The retention sector, which outperformed past twelvemonth arsenic well, is benefiting from a beardown lodging market.

For example, National Storage Affiliates Trust (ticker: NSA), which yields astir 3%, has returned astir 50% this year, dividends included.


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Residential REITs person besides been awesome performers this year, returning astir 33% connected average. That’s astir treble the S&P 500’s effect of astir 17%.

Regional malls, which had struggled successful caller years and suffered during the pandemic, person returned astir 50% for the twelvemonth done July 7.

One of that sector’s biggest operators, Simon Property Group (SPG), precocious declared a quarterly dividend of $1.40 a share, up 8% from $1.30. It has returned astir 50% done July 7.

Even galore of the underperforming sectors person done respectably.

Data centers, 1 of the apical gainers past year, person lagged successful 2021 with a 14% return—not market-beating but hardly a disaster. “Data centers were a large beneficiary during Covid, and there’s skepticism astir the sustainability of that, contempt each the request for data,” says Gina Szymanksi, a portfolio manager astatine AEW Capital Management, citing pricing powerfulness for rental agreements arsenic 1 concern.

She says it’s important for investors to analyse the fundamentals successful assorted sectors and to measure the gait of the betterment successful each one. “Not each Covid winners volition needfully taper off,” she says. And “not each Covid losers volition rebound astatine the gait radical are expecting.”

Szymanski sees much upside successful sectors specified arsenic apartments, single-family rentals and assorted concern REITs.

She is much cautious connected bureau REITs, which person returned astir 15% this year, partially due to the fact that “there’s inactive contention astir semipermanent bureau request fixed work-from-home trends.”

First-half returns don’t ever archer the afloat story. Case successful point: Lodging/resort REITs person returned astir 12% this year, helped by a beardown archetypal quarter. That’s been followed by weaker returns much recently. One interest is that business travel coming retired of the pandemic continues to beryllium anemic compared to humanities levels. “Investors are trying to measure the nett interaction of however terrible concern travel’s interaction volition be, combined with this singular spot successful leisure travel,” Green Street’s Knott says.

One subsector wherever Knott sees accidental is gambling REITs specified arsenic MGM Growth Properties (MGP) and Gaming & Leisure Properties (GLPI). Both of these REITs own, but don’t operate, assorted casino properties. “The gaming REITs don’t bespeak the attractiveness of the underlying real-estate worth of what they own,” Knott says.

Szymanksi says REIT valuations wide “are fair, comparative to history, but the upside is coming from [growth in] currency flows.”

Just don’t expect a rising tide to assistance each REITs.

Write to Lawrence C. Strauss astatine lawrence.strauss@barrons.com

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