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Quarter-End Insights

REITs: Playing Defense in an Uncertain Market

Look to retail for opportunity within a fairly valued REIT sector.

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  • Morningstar's real estate coverage is trading at a 3% 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.
  • At current pricing, we think retail REITs under our coverage present interesting investment opportunities.  Simon Property Group (SPG),  GGP (GGP), and  Kimco Realty (KIM) are trading at noteworthy discounts to our respective fair value estimates.

 

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