2022 has been a difficult year for REITs. The FTSE Nareit All Equity REITs Index is down 20% YTD through September 16 amid massive inflation and spiraling interest rates.
This slide exceeds the 19% drop for the S&P 500 and may be a buying opportunity for you. Strategists at Bank of America see it this way.
Bank of America analysts wrote in a commentary that REITs represent their “preferred market weight sector, as they provide inflation-protected income with high yields and increased dividends.” Income is protected from inflation because rents often rise in tandem with inflation.
Also, โHistorically, drug outperforms the late cycle and is second only to energy and beyond. [earnings] revisions [by analysts] In 2022, with fundamentals remaining solid,โ the analysts said.
They love residential real estate investment trusts. “Multiple families have never looked this good, given record occupancy levels, healthy rent-to-income ratios, continued housing construction, and rising mortgage rates, which make rent more attractive,” they said.
Favorite Bank of America
Here are the top picks for BofA REIT analysts:
ยท American homes 4 for rent (AMH) . It has a “high-quality single-family rental portfolio,” Bank of America analysts said, the second largest in the segment. โBased on the estimated net worth of fixed future assets, AMHโs valuation is attractive with a strong balance sheet.โ Analysts cite “the limited new supply of single-family homes, a structural demographic tailwind with millennials, cumulative consolidation/development opportunities, margin growth prospects, amenity fee upside, and strong management.”
ยท Federal Real Estate Investment Fund (FRT) . Analysts said it is a commercial sector national investment fund that owns, manages and develops “high-quality retail properties”. It has properties across coastal markets with a focus on strong demographics and first ring suburbs. “FRT is trading at a significant discount on its historical relationship versus its peers,” the analysts said. This “represents profound value for a REIT that has a highly rated portfolio along with a strong balance sheet and management team.”
ยท public storage (PSA) . Analysts said it is the largest self-storage fund in the United States, “with improved technology investment margins.” “PSA has the strongest balance sheet in the sector.” Analysts said key strengths include the non-PSA store portfolio, which now makes up 25% of its assets, and will “boost internal growth with the leasing of these assets.” PSA clients also increase their average length of stay, which boosts revenue.
ยท Industrial property in Rexford (REEXR) . Analysts said he was a “local sniper in the narrow industrial market of Southern California.” “REXR owns, owns, redevelops and operates warehouses only in Southern California markets near large population centers.” Analysts anticipate โthe strongest rental growth in the REXR markets, with higher tenant demand…and supply shrinking from transfers to higher and better use. This will help REXR achieve the strongest internal growth in the segment.โ
ยท UDR (UDR) . โThis is an apartment REIT with a geographically diversified portfolio, strong operating platform, and respected management team,โ the analysts said. โIts next-generation operating platform is a distinct factor that has boostedโฆ expense margins and is currently in phase two of its operating initiatives representing more than $100 million in potential incremental net operating income. We love UDRโs focus on technologyโฆโ
