3 Unloved REIT Sectors That Are On Fire

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More than 200 publicly traded real estate investment trusts (REITs) across 13 sectors are traded on the stock market, according to the National Association of Real Estate Investment Trusts (Nareit)

With so many REITs to choose from, making decisions on which ones to invest in can be somewhat difficult for the average investor.

Many stock pickers look for high-dividend yields, but those REITs can sometimes be dividend traps, especially if the high yield is the result of poor performance. If the company cuts the dividend and the share price falls off by 15% or more, what good does that high yield do for an investor?

Investigating the fundamentals of a REIT, such as funds from operations (FFO), net operating income (NOI) and revenue stream, is also important. Strong fundamentals are fine, but many REITs with great fundamentals still lost 20% or more of their values in 2022.

But what about relative strength, as shown by recent price performance and momentum?

With the dawn of the new year, Wall Street is gravitating toward certain REIT sectors that were crushed in 2022 and remain unloved. Three of those sectors — mortgage, office and healthcare — have outperformed all other REITs quite handily over the past five trading days. Office and healthcare REITs have been profitable over the past four weeks as well.

Take a look at some of the best-performing mortgage REITs (mREITs) over the past five trading days. This sector is truly on fire.

Acres Commercial Realty Corp. ACR is up 12.35%.

PennyMac Mortgage Investment Trust PMT is up 8.94%.

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Chimera Investment Corp. CIM is up 8.6%.

AG Mortgage Investment Trust Inc. MITT is up 8.57%.

Many other mREITs are also higher by roughly 3% to 6% over the past five days.

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Two other REIT sectors are also hot at the moment. Not including mREITs, eight of the 12 best-performing REITs ($5 stocks and up) over the past five days are either office or healthcare REITs:


Office REITs:

Office Properties Income Trust OPI is up 9.2%.

Veris Residential Inc. VRE is up 2.19%.

Piedmont Office Realty Trust Inc. PDM is down 0.98%.

Highwoods Properties Inc. HIW is down 2.03%.

Health care REITs:

Healthpeak Properties Inc. PEAK is up 3.02%.

Ventas Inc. VTR is up 2.63%.

Welltower Inc. WELL is up 2.37%.

Community Healthcare Trust Inc. CHCT is up 1.05%.

Looking out four weeks, although mREITs have not performed well, six of the eight office or healthcare REITs have had price increases during that time, ranging from 1.72% for Healthpeak Properties to 3.59% for Ventas. Only Piedmont Office Realty Trust (negative 0.54%) and Highwoods Properties (negative 1.29%) have suffered losses.

How can this be? Don’t mREITs hate Federal Reserve interest-rate hikes because rising rates crush the spreads between borrowing and lending? Aren’t office workers supposed to be a relic of the past, and won’t a recession in 2023 further crush the occupancy rate of office REITs? And what about all those healthcare operators who have been struggling with higher costs and shaky finances since the 2020 COVID-19 pandemic?

Perhaps all of that has already been discounted in the current share prices. Chimera Investment is down 58% over the past 52 weeks. Office Properties Income Trust is down 43% and Healthpeak Properties is down 28% during that time frame.

Savvy investors may be looking into the future, sensing that the fundamentals and dividend yields of these sectors may offer better times ahead.

Speculation in the media or in chat rooms runs rampant. But performance is the bottom line and right now the Street seems to be shifting allocations of money into mortgage, office and healthcare REITs.

While five days or even four weeks of performance is not reason enough to choose a stock, investors would be wise to research and continue monitoring these three sectors for possible bouncebacks in 2023.

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