3 Reasons To Hunt For Value In REITs Today

Core Insights - Real Estate Investment Trusts (REITs) have significantly underperformed the S&P 500 since early 2022, with a price decline of approximately 36% compared to the index [1][2] - The market treats REITs as bond proxies due to their requirement to distribute at least 90% of taxable income, leading to a strong negative correlation with interest rates [2][3] - Current REIT valuations are near their lowest levels relative to the broader market since the Great Financial Crisis, indicating potential mispricing opportunities [3] Group 1: REIT Performance and Valuation - REITs have been the worst-performing sector since early 2022, primarily due to rising interest rates [2] - The REIT index has dropped over 8% in price since 2019, while total funds from operations (FFO) have increased significantly [5][6] - Same-store net operating income (NOI) growth remains strong, indicating robust fundamentals despite recent price declines [7][8] Group 2: Interest Rate Outlook - Long-term interest rates are expected to decline as inflation metrics show signs of easing, which could positively impact REIT valuations [10][12] - The current inflation rate, excluding housing costs, has been below the Federal Reserve's 2% target for nine consecutive months, suggesting a potential for lower interest rates [11][12] Group 3: Supply Dynamics - New supply growth in commercial real estate (CRE) is declining, particularly in sectors like multifamily and industrial, which is favorable for landlords [13][15] - Retail sector supply growth is at its lowest level in decades, leading to increased occupancy rates in shopping centers [17][18] - The favorable supply outlook in key markets, such as the Sunbelt, is expected to drive growth for specific REITs like Whitestone REIT [18]