Real Estate Moves to The Big Table

9/12/2016


The stock market is raining on real estate's coming-out party.

At the end of August, real estate separated from the financial sector into its own sector. However, with real estate stocks — particularly real estate investment trusts (REITs) — lagging the market, the newly formed sector may not open to the type of fanfare it wants.

REITs have hugely outperformed the S&P 500 Index over the last 20 years, with the MSCI U.S. REIT Index returning 709%, versus 386% for the S&P 500. However, the relative return would have been even more impressive a few weeks ago. The REIT index has declined 2.5% since the end of July, while the S&P 500 has gained about 0.6%.

Weak recent returns aside, we plan to view real estate through the same lens used to analyze the other 10 sectors. With that in mind, the table below breaks down the new sector to gauge both its characteristics and its investment appeal.

INDUSTRY ANALYSIS
Real
Estate
Financials
(Excluding
Real
Estate)
S&P 1500
Index
No. of companies
97
210
1,500
Total stock-market value ($billions)
859
3,041
22,734
Avg. div. yield (%)
3.9
2.2
1.6
Average 12-month growth
Sales (%)
9
7
2
EPS (%)
(1)
0
2
Average valuation ratio
Price/earnings
38
17
22
Price/sales
6.1
2.8
2.4
Price/book
3.2
1.7
3.2
Average total return
Since July 31 (%)
(2)
5
2
Year-to-date (%)
19
7
10
12 months (%)
35
13
14
Average Quadrix scores
Momentum
57
53
51
Value
32
68
56
Quality
61
64
63
Overall
48
69
59
Notes: Quadrix scores are percentile ranks, with 100 the best.    Averages exclude some outliers.

Here are some key points to remember:

• REITs drive this bus, accounting for 98% of the real estate sector's stock-market capitalization.

• Mortgage REITs, which own mortgage loans rather than real property, will remain in the financial sector.

• Real-estate stocks don't look particularly attractive, averaging Quadrix Overall scores of 48, well below the average of 59 for the broad S&P 1500 and 69 for the financial sector. Blame real estate's weakness mostly on REITs, which earn an average Overall score of 47.

• Real estate stocks are more expensive than the typical financial. REITs average Value scores of 30. Over the last 17 years, the REITs in our coverage universe averaged Value scores of 47.

Real estate accounted for more than 20% of the S&P 1500 Index financial sector before the split-off; real estate stocks in the index combine for a stock-market value of $839 billion. However, while the carve-out had a huge effect on money managers with a sector focus, individual investors might barely notice the split.


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THE REITs WE WATCH
Below we list the 46 real estate investment trusts (REITs) in our Alternative Income Watch List (www.DowTheory.com/Go/Alt). The Watch List also features master limited partnerships (MLPs). Every REIT earns a ranking of A (above average), B (average), or C (below average). These ratings are relative to other REITs rather than the broad market; the Dow Theory Forecasts buy lists contain no REITs, and just one — Summit Hotel Properties ($14; INN) — is recommended in Upside, our sister publication that focuses on smaller stocks.
3-Year
Annual.
Div.
Growth
(%)
---- 12-Month Growth ----
-- Price/Sales --
------ Quadrix Scores ------
Company (Price; Ticker)
Div.
Yield
(%)
Sales
(%)
Per-
Share
Profits
(%)
Cash From
Operations
(%)
Trailing
Versus
5-Year
Average
Overall
12-
Factor
Reranked
Overall
Industry
Rank
Alexandria RE Equity
($115; ARE)
2.8
12
14
NA
6
9.7
1.20
22
78
39
Office
C
American Campus
($52; ACC)
3.3
6
3
(20)
4
8.7
1.22
17
29
11
Residential
C
American Tower
($117; AMT)
1.8
26
21
2
17
9.5
0.97
48
41
38
Specialized
B
Apartment Invest.
($47; AIV)
2.8
13
1
2
13
7.3
1.53
36
43
8
Residential
B
Avalonbay Commun.
($180; AVB)
3.0
9
3
(2)
15
12.1
0.96
40
31
26
Residential
B
Boston Properties
($143; BXP)
2.7
17
2
10
13
8.6
1.07
66
86
83
Office
A
Camden Property
Trust ($91; CPT)
3.3
7
7
(46)
8
9.7
1.17
32
26
13
Residential
B
Corrections Corp.
($16; CXW)
13.5
32
6
(13)
(21)
1.0
0.50
57
45
44
Specialized
C
Digital Realty Trust
($102; DLR)
3.5
5
18
(68)
21
7.6
1.26
22
68
44
Specialized
C
Duke Realty
($28; DRE)
2.5
10
(13)
0
(5)
10.8
2.07
19
29
5
Industrial
C
Equity Lifestyle
Pptys. ($80; ELS)
2.1
20
5
16
(1)
8.0
1.52
43
67
42
Residential
B
Equity Residential
($66; EQR)
3.1
77
(1)
371
(16)
8.9
0.92
51
21
25
Residential
C
Essex Property Trust
($230; ESS)
2.8
9
12
48
13
11.5
1.06
52
48
54
Residential
B
Extra Space Storage
($83; EXR)
3.8
32
33
29
20
10.9
1.08
51
31
22
Specialized
B
Federal Realty Invest.
($161; FRT)
2.4
9
8
11
11
14.8
1.21
32
32
10
Retail
B
General Growth
Pptys. ($29; GGP)
2.7
18
1
(38)
26
10.0
1.24
29
34
9
Retail
C
HCP ($40; HCP)
5.7
4
8
NA
5
7.1
0.81
29
55
39
Health care
B
Hospitality Properties
($31; HPT)
6.6
3
10
(21)
3
2.3
0.93
66
100
94
Hotel & resort
A
Host Hotels & Resorts
($17; HST)
4.7
33
1
18
3
2.3
0.92
86
91
88
Hotel & resort
A
Iron Mountain
($40; IRM)
4.9
(28)
2
49
24
3.3
1.59
18
39
8
Specialized
B
Kilroy Realty
($74; KRC)
2.0
0
5
159
15
11.3
1.15
74
90
86
Office
A
Kimco Realty
($31; KIM)
3.3
7
29
35
(42)
7.3
0.94
57
59
38
Retail
A
Lamar Advertising
($63; LAMR)
4.9
NA
9
(16)
7
4.2
1.18
48
50
15
Specialized
B
LaSalle Hotel
($26; LHO)
6.8
31
6
(30)
4
2.4
0.79
54
70
41
Hotel & resort
B
Liberty Property
Trust ($42; LPT)
4.5
0
(4)
53
7
7.6
1.12
58
93
71
Diversified
A
Macerich ($84; MAC)
3.3
43
(5)
(40)
(2)
10.0
1.15
44
13
25
Retail
B
Mid-America
Apartment ($96; MAA)
3.4
5
4
(27)
23
6.8
1.11
40
71
33
Residential
B
National Retail
Pptys. ($52; NNN)
3.5
3
11
2
10
14.7
1.37
46
73
62
Retail
B
Omega Healthcare
($38; OHI)
6.3
8
44
2
53
8.4
0.94
89
75
96
Health care
A
Prologis ($55; PLD)
3.1
14
31
(18)
57
10.8
1.09
53
70
52
Industrial
A
Public Storage
($226; PSA)
3.2
14
7
11
10
15.3
1.13
40
34
13
Specialized
B
Rayonier ($28; RYN)
3.6
(17)
24
178
(4)
5.0
0.93
61
69
89
Specialized
B
Realty Income
($68; O)
3.6
6
8
0
13
16.3
1.37
35
48
40
Retail
B
RLJ Lodging Trust
($23; RLJ)
5.8
21
1
(5)
11
2.4
0.83
61
63
33
Hotel & resort