The State Of REITs: July 2019 Edition

The average REIT has had a positive total return in 5 of the first 6 months of 2019, including a return of +1.61% in June.

Small-cap REITs had a strong June, outperforming large caps by 120 basis points.

Nearly 63% of REITs securities had positive total returns in June.

Timber and Industrial were the best-performing REIT property types in June, while Corrections and Manufactured Housing lagged.

In June, the REIT sector’s median discount to NAV decreased from 6.8% to 6.6%.

After a poor performance in May, REITs rebounded in June (+1.61%), bringing the average equity REIT to a stellar return of 19.17% over the first half of 2019. REITs saw much smaller gains than the broader market did in June, as the Nasdaq (+7.42%), S&P 500 (+6.89%) and Dow Jones Industrial Average (+7.19%) surged. The market cap-weighted Vanguard Real Estate ETF (VNQ) achieved a slightly lower return than the average REIT in June (+01.56% vs. +1.61%) and had a virtually identical performance to the average REIT over the first half of the year (+19.16% vs. +19.17%). The spread between the FFO multiples of large-cap REITs (20.7x) and small-cap REITs (12.6x) continued to widen further in June. Is this 8.1 turn large-cap premium warranted, or is it merely due to the impact of the $2.77 billion influx of capital in the first half of 2019 into real estate ETFs (nearly all of which are market cap-weighted)? In this monthly publication, I will provide REIT data on numerous metrics to help readers identify which property types and individual securities currently offer the best opportunities to achieve their investment goals.

Small-cap REITs (+2.92%) and large-cap REITs (+1.72%) had a strong June, while micro-cap REITs (-0.74%) were in negative territory for the 2

month in a row. Over the first half of 2019, however, micro-cap REITs (+25.81%) remain the top performers, outpacing their larger peers. Mid-cap REITs (+15.76%) continue to trail the REIT sector as a whole (+19.17%), lagging 341 basis points behind thus far this year.

70% of REIT property types averaged a positive total return in June, with a 17.21% total return spread between the best- and worst-performing property types. Timber (+13.51%) and Industrial (+9.42%) had the best average returns. Timber was led by Weyerhaeuser (WY) with an impressive +17.23% return in June. Corrections (-3.7%) had the weakest average performance, dragged down by rising pressure on big banks from political activists to stop lending to companies that operate private prisons or provide services to U.S. Immigration and Customs Enforcement.

Although 30% of REIT property types averaged a negative return in June, all except for Malls remain in the black thus far in 2019. Industrial (+41.98%) and Land (40.94%) remain the best-performing property types year to date. 95% of REIT property types average double-digit positive returns this year. Mall REITs (-6.81%), however, are badly underperforming the REIT sector as a whole (+19.17%), due largely to a disproportionately large number of recent retailer bankruptcies, most of which occurred in the first quarter of 2019. Although unexpected bankruptcies can and do occur, the 2

half of 2019 is expected to have far fewer retailer bankruptcies.

The REIT sector as a whole saw the average P/FFO (2019) increase slightly (from 15.2x up to 15.3x) during June. Halfway through 2019, REITs continue to trade well above the 13.1x average FFO multiple at which they began the year. The average FFO multiples rose for 45% of property types, fell for 35% and held steady for 20%. Single Family Housing (25.1x) continues to see multiple expansion and now trades at the highest average multiple. Malls (7.8x) saw even further multiple contraction during June and remain the property type trading at the lowest average multiple.

On June 14th, TIER REIT (TIER) ceased trading as the merger with Cousins Properties (CUZ) officially closed. TIER common shareholders received 2.98 shares of CUZ for each share of TIER that they owned. The combined entity continues to trade under the ticker CUZ.

Innovative Industrial Properties (IIPR) was yet again the best-performing REIT during the month of June with a strong 47.78% return. IIPR has far outpaced every other REIT in 2019, and has already achieved an exceptional 175.04% return year to date. IIPR has benefited greatly from disproportionately strong investor interest in any company connected to the rapidly growing marijuana industry. Many companies in the marijuana industry have difficulty attaining financing due to the fact that the drug is still illegal at the federal level (although an increasing number of states have legalized or decriminalized the drug). IIPR buys the real estate of marijuana companies and leases the space back to them, effectively providing a much-needed source financing to some of these companies at terms that are very favorable to IIPR. The combination of the strong property-level returns and the investor appetite for pot stocks have driven IIPR to a 130.3% premium to Net Asset Value.

Ashford Hospitality REIT (AHT) was the worst-performing REIT in June with a dismal -32.04% return, due largely to the June 14th decision to cut the quarterly dividend in half (from $0.12/share to $0.06/share). Ashford Hospitality REIT is externally managed by the infamously self-serving team at Ashford Inc. (AINC). Ashford’s management have consistently made self-enriching decisions at the expense of shareholders of the managed REITs, such as the recent decision by AINC (whose chairman and CEO is Monty Bennett) to pay a high price to acquire the hotel management business of Remington Holdings, LP (whose CEO is Monty Bennett). Remington Holdings, LP is owned by Monty Bennett and his father Archie Bennett, Jr. For many years, Monty Bennett has enriched himself with the lavish fees that Remington charged to manage both Ashford Hospitality REIT and Braemar Hotels & Resorts (BHR), both of which also have Monty Bennett as chairman. This toxic, incestuous relationship between all these Monty Bennett companies has destroyed a tremendous amount of value for the shareholders of each of these REITs.

62.78% of REITs had a positive return in June, with 91.76% in the black year to date. Over the first half of 2019, the REIT sector has performed substantially better than it did over the first 6 months of 2018. During the first half of last year, the average REIT had a +1.92% return, whereas this year the average REIT has already seen a total return 10x higher (+19.17%).

For the convenience of reading this table in a larger font, the table above is available as a PDF as well.

Dividend yield is an important component of a REIT's total return. The particularly high dividend yields of the REIT sector are, for many investors, the primary reason for investment in this sector. As many REITs are currently trading at share prices well below their NAV, yields are currently quite high for many REITs within the sector. Although a particularly high yield for a REIT may sometimes reflect a disproportionately high risk, there exist opportunities in some cases to capitalize on dividend yields that are sufficiently attractive to justify the underlying risks of the investment. I have included below a table ranking equity REITs from highest dividend yield (as of 6/30/2019) to lowest dividend yield.

For the convenience of reading this table in a larger font, the table above is available as a PDF as well.

Although a REIT’s decision regarding whether to pay a quarterly dividend or a monthly dividend does not reflect on the quality of the company’s fundamentals or operations, a monthly dividend allows for a smoother cash flow to the investor. Below is a list of equity REITs that pay monthly dividends ranked from highest yield to lowest yield.

NAV Data as of June 28

, 2019

The REIT sector median discount to Net Asset Value narrowed in June from 6.8% to 6.6%.

Health Care now trades at the greatest NAV premium of all REIT property types, overtaking Other Retail. The median Health Care premium from 16.0% to 18.3% during June. Other Retail (this is retail that is neither regional malls nor shopping centers - for example: free-standing Triple Net Retail) saw its average NAV premium decline again in June from 17.7% to 14.3%, and now trades at a smaller premium than Health Care or Self Storage. IIPR had a stellar June and saw its already very high premium to consensus NAV rise from 121% to 130%. What is particularly remarkable is that this premium rose despite a significant increase in consensus NAV from $38.07 to $53.65.

Mall REITs remain at the largest discounts to consensus NAV, but saw the median discount narrow in June from 39.2% to 36.2%. Timber REITs performed very well in June as they recovered from a rough May, leading to a meaningful narrowing of the median Timber REIT NAV discount from 26.7% to 17.4%. Shopping Center REIT Cedar Realty Trust (CDR) now trades at the largest discount (53.8%) to NAV of any REIT, followed closely by the aforementioned AHT, which is now trading 53.1% below consensus NAV.

Month after month, the large-cap REIT premium continues to grow. Investors are now paying on average upwards of 64% more for each dollar of FFO/share to buy large-cap REITs than small-cap REITs (20.7x/12.6x - 1 = 64.3%). This steadily rising market cap-based spread presents a growing arbitrage opportunity. Whether REIT pricing normalizes due to a market correction (in which high multiple large caps that are priced for strong growth have further to fall) or due to an increase in the multiple afforded to small-cap REITs, there is the potential for significant alpha to be achieved through overweighting excessively discounted small-cap and micro-cap REITs. It is important to note, however, that while smaller REITs are collectively more attractively priced than larger REITs, investors should choose investment positions carefully, as not all low multiples are unjustified. In order to target investment into those securities that are genuinely worth substantially more than the current share price reflects, an investor needs to take active positions rather than simply using an ETF.

Over recent years, a larger and larger portion of money in the market has been invested passively. ETFs and other passive investment vehicles have continued to experience growing inflows of investor capital, while active investment has declined in popularity. While the ease and simplicity of investing passively in an ETF rather than spending time carefully analyzing specific securities is certainly appealing, foregoing this analysis takes away an investor’s ability to differentiate between securities that have great upside potential versus those that are likely to perform poorly. Take, for example, two Health Care REITs with a focus on senior housing.

New Senior Investment Group (SNR) and Senior Housing Properties Trust (SNH) both began 2019 as senior housing REITs with beaten-down share prices. However, to those who were actively following each company, it was clear that they were positioned for very different results in 2019. SNH continues to be managed by RMR Group (RMR), which is one of the worst external REIT managers when it comes to achieving good operating performance and generating shareholder returns. SNR, on the other hand, had recently cut the dividend (and already experienced the resulting price drop) and announced in late 2018 an effort to aggressively reform the company in a way that could produce strong shareholder returns.

SNH announced an ugly restructuring of its arrangement with Five Star Senior Living on April 2

and cut the common dividend by 61.5% on April 18

. SNR, on the other hand, internalized management on January 1

, appointed an independent director as the chairman of the board on January 4

, began providing guidance for the first time on February 22

and has maintained steady dividend payments during 2019. Halfway through 2019, these strategic differences have resulted in dramatically different results for shareholders. SNH has a dismal -25.97% return, whereas SNR has a stellar 70.85% return. Active investors had the opportunity to choose SNR over SNH, whereas REIT ETF investors passively bought both. In fact, due to the larger market cap of SNH, most market cap-weighted REIT ETFs hold a larger position in SNH than SNR. This higher weight may cause the loss from SNH to largely wipe out the tremendous 2019 return of SNR. Active investors who put the time into researching both companies and correctly identified the superior opportunity, however, got to enjoy the strong SNR total return without the offsetting loss from SNH. By carefully analyzing REIT data and industry trends, active investors have the opportunity to outperform ETFs.

I am/we are long WY & SNR.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure:

2nd Market Capital and its affiliated accounts are long WY& SNR. I am personally long WY. This article is provided for informational purposes only. It is not a recommendation to buy or sell any security and is strictly the opinion of the writer. Information contained in this article is impersonal and not tailored to the investment needs of any particular person. It does not constitute a recommendation that any particular security or strategy is suitable for a specific person. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. The reader must determine whether any investment is suitable and accepts responsibility for their investment decisions. Simon Bowler is an investment advisor representative of 2MCAC, a Wisconsin registered investment advisor. Positive comments made by others should not be construed as an endorsement of the writer's abilities as an investment advisor representative. Commentary may contain forward looking statements which are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MCAC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts and findings in this article. Although the statements of fact and data in this report have been obtained from sources believed to be reliable, 2MCAC does not guarantee their accuracy and assumes no liability or responsibility for any omissions/errors.

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小盘股REITs在6月份表现强劲，比�筛叱�恪�

近63%的REITs证券在6月份实现了正的总回报。

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预计2019年的一半将会有更少的零售商破产。

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6月14日，随着与Cousins Properties(CUZ)的合并正式结束，Tier REIT(Tier)停止了交易。等级普通股东每持有一股等级股票就能�.98股CUZ。合并�堤寮绦诠善贝隒UZ下交易。

创新工业地产(IIPR)再次成为6月份表现最好的房地产投资信托基�乇矢叽�47.78%。IIPR在2019年远远超过其他所有房地产投资信托基�⒁咽迪至私.04%的非凡回报率。IIPR从投资者对任何与快速�拇迪喙氐墓镜牟怀杀壤那苛倚巳ぶ谢级唷４幸档男矶喙竞苣鸦谧剩诹钜患度匀皇欠欠ǖ�(尽管越来越多的州已经将这种药物合法化�淌禄�)。IIPR购�楣镜姆康夭⒔占渥饣馗牵行У匾远訧IPR非常有利的�渲幸恍┕咎峁┝思毙璧睦丛慈谧省Ｇ烤⒌牡夭痘乇ê屯蹲收叨源傻奈缚诠餐贫疘IPR达到资产净值130.3%的溢价。

阿什福德酒店房地产投资信托基�T)是6月份表现最差的房地产投资信托基�乇什业�-32.04%，这�怯捎�6月14日�径裙上⑾话�(从0.12美元/股�.06美元/股)。Ashford酒店REIT由Ashford Inc.�阎淖晕曳油獠抗芾怼�(AINC)。阿什福德的管理层一直以托管REITs的股东为代价�愿宰愕木鏏INC(其董事长兼首席执行官是Monty Bennett)最近�愿呒凼展篟emington Holdings，LP(其CEO是Monty Bennett)的酒店管理业�emington Holdings，LP由Monty Bennett和他的父亲Archie Bennett Jr.所有。多年来，Monty Bennett通过Remington为管理Ashford酒店REIT和Braemar Hotels&Resorts(BHR)而收取的丰�梅岣涣俗约海饬郊夜疽捕加蒑onty Bennett担任董事长。所有这些Monty Bennett公司之间的这种有毒的、乱伦的关系已经破坏了每�Ts股东的巨�怠�

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截至6月28日的NAV数据

, 2019

房地产投资信托基�IT)部门相对于资产净值的折让中位数在6月份从6.8%收窄至6.6%。

医疗保健现在的资产净值溢价是所有REIT物业类型中最高的，超过了其他零售。6月份医疗保费中位数由16.0%降至18.3%。其他零售(这是既不是地区性购物中心也不是购物中心的零售-例如：独立的三重净零售)6月份的平均资产净值溢价再次从17.7%下降到14.3%，现在的交易溢价低于医疗保健�娲ⅰIPR在6月份表现�湎喽杂诠彩蹲什恢档囊缂垡丫浅８撸�121%升至130%。特�米⒁獾氖牵」芄彩蹲什恢�(NAV)从38.07美元�仙�53.65美元，但这一溢价仍有所上升。

小型房地产投资信托基�奂鄯热宰畲�6月份折扣率中值从39.2%收窄至36.2%。木材REIT在6月份表现非常好，�谴�5月的不景气中恢复过来，导致木材REIT NAV折让中位数从26.7%�照�17.4%。购物中心REIT Cedar Realty Trust(CDR)现在的交易价�杂谧什恢档恼廴米畲.8%)，�浜巧鲜，目前的交易价�彩蹲什恢档�53.1%。

月复一月，�康夭蹲市磐谢奂绦Ｍ蹲收呦衷诠郝蘎EITs的每1美元FFO/股票比小盘REITs平均多支付64%以上(20.7x/12.6x-1=64.3%)。这种稳步上升的基于市值的利差提供了一�显奶桌帷Ｎ蘼跼EIT定价是�谑谐〉其中为强劲�鄣母弑妒山徊较碌�)�谛∨坦蒖EIT提供的倍数�迪终；加锌赡芡ü哉劭酃叩男∨坦珊臀⑿凸蒖EIT进行�词迪窒灾陌⒍āＨ欢档米⒁獾氖牵淙唤闲〉腞EIT整体定价比较�EIT更具吸引力，但投资者应�≡释反纾⒎撬械褪杏识际遣缓侠淼摹Ｎ私勘晖蹲视谀切┱嬲壑翟对陡哂诘鼻肮杉鄯从车闹と蹲收咝枰扇』耐反纾皇羌厥褂肊TF。

近年来，市场上越来越多的资�蹲省TF和其他被动投资工具继续经历着不断�耐蹲收咦时玖蹲实氖芑队潭扔兴陆怠Ｋ淙槐欢蹲蔈TF而不是花时间仔细分�ㄖと募院图钥隙ê苡形Γ鲜崃送蹲收咔志哂芯薮乔绷Φ闹と涂赡鼙硐植患训闹と哪芰ΑＲ粤礁赜诶夏曜》康囊搅芌EITs为例。

新的高级投资集团(SNR)和高级住房物业信托(SNH)都�呒蹲≌琑EITs开始于2019年，股价暴跌。然而，对于那些积极关注每一家公司的人来说，很�窃�2019年的定位是截然不同的结果。SNH继续由RMR Group(RMR)管理，在实现良好的运营业绩和产生股东回报方面，RMR是最差的外部REIT经理之一。另一方面，SNR最近�斯上�(并且已经经历了由此导致的价��)，并在2018年底宣布了一项努力，旨在对公司进行积极的改革，以期产生强劲的股东回报。

SNH在4月2日宣布了与五星级老年生活公司的安排的�刈�

并在4月18日将普通股股息�1.5%

。另一方面，SNR在1月1日实现了内部化管理

，于1月4日任命一名独立董事为董事会�/p>

，于2月22日开始第一次提供指导

并在2019年期间保持了稳定的股息支付。2019年过半，这些战略差异给股东带来了截然不同的结果。SNH有一�司谏サ�-25.97%的回报率，而SNR有一��70.85%的回报率。积极的投资者有机会选�而不是SNH，而REIT ETF投资者被动地购�摺Ｊ率瞪希捎赟NH的市值较�兄导尤ǖ腞EIT ETF在SNH中的地位�NR。这种更高的权重可能会导致SNH的�诤艽壬系窒�2019年SNR的巨�āＨ欢度胧奔溲芯空饬郊夜静⒄肥侗旁交岬幕蹲收撸茨芟硎艿角烤⒌腟NR总回报，而不会�而产生抵销�Ｍü邢阜治T数据和行业�耐蹲收哂谢崤苡瓻TF。

补充披露：第二市场资本及其关联账户是长期WY&SNR。我�褪橇１疚慕慰肌Ｕ獠皇锹魏沃と慕ㄒ椋细凳亲囊饧１疚闹邪男畔⑹强凸鄣模皇屎先魏翁囟ㄈ嗽钡耐蹲市枨还钩扇魏翁囟ò踩允屎咸囟ㄈ嗽钡慕ㄒ椤Ｍ蹲使渤钟械闹と峭痘缘模婕胺缦眨赡艿谋窘А６琳弑匦肴范ㄈ魏瓮蹲适欠剩⑽堑耐蹲示械Ｔimon Bowler是威斯康星州注册投资顾问2MCAC的投资顾问代表。其他人�幕缆鄄挥Ρ焕斫馕宰蹲使宋蚀淼哪芰Φ娜峡伞Ｆ缆劭赡馨ㄒ宀蝗范ǖ那罢靶猿率导式峁赡苡胛颐堑脑げ饣拼嗤�2MCAC及其附�静怀械Ｊ褂煤鸵览当疚闹械囊饧⒐兰啤⒃げ夂头⑾值脑＞」鼙颈ǜ嬷械氖率党率菔谴酉嘈攀强煽康睦丛椿模�2MCAC不保证它们的准确性，也不对任何遗漏/错�Ｈ魏卧巍�

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