REITs Are Boring And Boring Is Good

Core Insights - The REIT sector has experienced significant underperformance, particularly since the Federal Reserve began raising interest rates in March 2022, with a 70% underperformance compared to the S&P 500 [6] - Despite the underperformance, the fundamentals of many REITs remain solid, with opportunities particularly in small and mid-cap REITs [7][9] - The current interest rate environment is creating volatility, which can present investment opportunities [10] REIT Performance and Fundamentals - REITs have been trading at discounts to net asset value, with many companies exploring mergers or liquidation to unlock value [26][28] - Over two-thirds of REITs have raised their earnings guidance for 2025, and more than a third have increased their dividends this year [12][13] - The average REIT dividend yield is around 4%, but when considering smaller and mid-cap REITs, the yield can be closer to 6% [24] Dividend Insights - Many REITs are retaining cash to find the right investment opportunities rather than aggressively raising dividends [30] - Companies like Simon Property Group and Welltower have shown strong dividend growth, while others like Alexandria are facing challenges [32][37] - The focus on internal and external growth is crucial for predicting dividend increases [34] Sector-Specific Insights - Senior housing and data center REITs are expected to perform well, while sectors like lab space and cold storage are facing challenges [39][44] - Retail REITs are adapting by enhancing experiential offerings to attract customers, with grocery-anchored centers performing particularly well [50][56] - The office space sector is evolving, with some companies managing to weather the storm better than others [61][66] ETF Insights - Hoya Capital offers two ETFs, HOMZ and RIET, focusing on housing and high-dividend REITs, respectively [67][73] - HOMZ covers a broad range of housing-related investments, while RIET targets small and mid-cap REITs with attractive yields [69][73] Misconceptions about REITs - There is a common misconception that REITs are highly sensitive to interest rates; however, their performance is more closely tied to the underlying properties and tenant demand [16][82] - REITs provide transparency and allow investors to observe property performance directly, which is a significant advantage over other asset classes [76][84]