Here's How To Play REITs After Earnings

Deutsche Bank’s Vin Chao said that the recent underperformance of the REITs has created near-term opportunities to invest into high quality players.

While macro uncertainties remain, 4Q reports and 2016 outlooks “painting a relatively stable picture,” analyst Vin Chao mentioned, while recommending investors to add shares of Simon Property Group Inc SPG, AvalonBay Communities Inc AVB and Boston Properties, Inc. BXP. He also recommended shares of secular growth stories like CyrusOne Inc CONE and defensively positioned companies like Retail Properties of America Inc RPAI. All five have Buy ratings.

Broadly speaking, 4Q results met expectations, with results released by Industrial and Malls marginally beating expectations. Apartment, Strip, and Office results were broadly in-line with expectations, while Healthcare missed modestly.

“Guidance from 9 of the 13 REITs that provided initial outlooks was below our projections, but 2/3 of the misses were due to what we would characterize as prudent funding that entail higher-than-expected dispositions and net dispositions in some cases.” Chao wrote.

He further commented, “The fundamental outlooks were relatively consistent with recent trends. We also suspect some embedded conservatism in light of the softer macro backdrop.”

Investors reacted negatively, sending the RMZ down 3.3 percent since January 26, versus a 1 percent gain in the S&P500 over the same period.