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Quarter-End Insights

REITs: Some Scattered Opportunities in a Fairly Valued Sector

Continued tension in Washington, along with the potential inability to pass tax reform, could make for a rocky rest of the year.

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  • Morningstar's real estate coverage is trading at a 2% 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 associated with future rate hikes. 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 see attractive investment opportunities scattered across various asset classes within our REIT coverage.  Vornado (VNO),  Public Storage (PSA),  CapitaLand Mall Trust (C38U) are each 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.