We see compelling evidence to own listed real estate in the current environment.
1. REITs have historically performed well following the end of Fed rate hikes
REITs perform well after a Fed pivot and should be part of a long-term asset allocation. Tactical opportunities may emerge as rate/growth expectations remain volatile.
At December 31, 2023. Source: Cohen & Steers calculations and Bloomberg.
Data quoted represents past performance, which is no guarantee of future results. The information presented above does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. (1) U.S. REITs are represented by the FTSE Nareit All Equity REITs Index. Returns shown are average non annualized total returns.
2. Moderating supply is supportive of rent growth
Fundamentals remain resilient. Demand is healthy, albeit decelerating, while supply is curtailed due to tighter financial conditions.
Construction starts by sector (% of inventory)
January 2015 – December 2023
At December 31, 2023. Source: Cohen & Steers calculations and Bloomberg.
Data quoted represents past performance, which is no guarantee of future results. The information presented above does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin.
3. REITS are undervalued compared to equities
Valuations relative to the broader equity market are meaningfully below the historical median. Attractively priced equity and REITs’ access to the unsecured bond market could allow them to take advantage of external growth opportunities.
U.S. real estate vs. U.S. equities earning multiple spreads1
January 2005 – February 2024
February 29, 2024. Source UBS, Bloomberg, Citi Research – U.S. Equity Strategy, and Cohen & Steers.
Data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend will begin. The information presented above does not represent the performance of any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance listed above. (1) (FFO) Funds from operations is the REIT industry’s key earnings metric. It is calculated as GAAP net income, plus real estate gains (minus real estate losses), plus GAAP real estate depreciation and amortization. The price/earnings ratio (often shortened to the P/E ratio or the PER) is the ratio of a company’s stock price to the company’s earnings per share. Earnings multiples are the ratio of a company’s share value to the amount of profit it makes in a particular period, whether paid out in dividends or not. 2023 multiples shown are forward looking for the current year. (2) U.S. Real Estate represented by UBS’ coverage universe of U.S. real estate companies from January 2005 to December 2010; data thereafter shows Cohen & Steers coverage universe. (3) The S&P 500 Index is an unmanaged index of 500 large-cap stocks that is frequently used as a general measure of stock market performance. It includes 500 large-cap stocks, which together represent about 75% of the total U.S. equities market. To be eligible for addition to the S&P 500, companies must have a market capitalization of at least US$4 billion.
FURTHER READING
Why invest in listed REITs today
REITs have outperformed stocks and bonds when yields and growth move lower. Demand is healthy while supply is constrained. And REIT valuations relative to the broader equity market are meaningfully below the historical median.
The Real Estate Reel: A closer look at Q1 REIT returns and what may be next
Listed REITs were down for the first quarter as markets adjusted to a rise in real rates, but we believe the outlook is positive in hard, soft and no-landing scenarios.
Tax-smart income alternatives
Strategies with inherent tax efficiencies may help investors diversify sources of income and potentially keep more of what they earn.
Important disclosures
This material represents an assessment of the market environment at a specific point in time and should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment and is not intended to predict or depict performance of any investment. This material is not being provided in a fiduciary capacity and is not intended to recommend any investment policy or investment strategy or take into account the specific objectives or circumstances of any investor. We consider the information in this presentation to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for investment. Please consult with your investment, tax or legal professional regarding your individual circumstances prior to investing. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations as volatility and other characteristics may differ from a particular investment.
Risks of Investing in Real Estate Securities
Risks of investing in real estate securities are similar to those associated with direct investments in real estate, including falling property values due to increasing vacancies or declining rents resulting from economic, legal, political or technological developments, lack of liquidity, limited diversification and sensitivity to certain economic factors such as interest rate changes and market recessions. Foreign securities involve special risks, including currency fluctuations, lower liquidity, political and economic uncertainties, and differences in accounting standards. Some international securities may represent small- and medium-sized companies, which may be more susceptible to price volatility and less liquidity than larger companies.
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