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Quarter-End Insights

Real Estate: Through the Noise, Opportunities Exist

To navigate the choppy waters ahead, keep it simple and focus on the fundamentals.

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  • Morningstar's real estate coverage is trading at a 7% discount to our fair value estimates.
  • We view themes in commercial real estate as generally defensive in nature, with lingering concerns about increasing bond yields pressuring property stocks globally by double-digit percentages. However, we continue to focus on underlying performance, which has remained healthy overall, as REITs have been focused on repositioning and strengthening their portfolios, deleveraging, and capital recycling. Construction of new property continues, however, as firms look for higher returns, putting into question levels of new supply as economic uncertainty remains.
  • In the U.S., we think  Simon Property Group (SPG) is attractive, trading at a 15% discount to our fair value estimate. We also continue to like healthcare REITs  HCP (HCP),  Welltower (HCN), and  Ventas (VTR).
  • While property stocks in Australia currently screen as fairly valued overall, we still see value in sectors with positive supply-demand fundamentals. Right now, the few stocks we see as offering an attractive risk-return dynamic are  Goodman Group (GMG),  Westfield (WFD), and  Aveo (AOG). Similarly, value can be found in well-positioned firms throughout our Asia coverage, including  CapitaLand Commercial Trust (C61U),  Mitsubishi Estate (8802), and  Cheung Kong Property Holdings (01113).

Edward Mui does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.