In December 2013, we wrote that overblown concerns about Federal Reserve interest rate policy had left best-in-class real estate investment trusts (REIT) on the bargain counter. Our call proved timely.
From May 22 through Dec. 31 of that year, the Dow Jones US Real Estate Index lost more than 14 percent of its value. But over the next 12 months, the index posted a total return of 26.7 percent. The five US REITs we featured in that article tracked the index with a return of 26.2 percent, but offered, on average, an additional percentage point of yield.
In February 2014, we doubled down on our REIT bullishness, identifying four then-unloved data-center stocks primed to move higher. Our thesis was investors weren’t giving sufficient weight to the importance of infrastructure in the digital age. That quartet has since posted a return of 136 percent.
We also harvested a 42.7 percent return in Mid-America Apartment Communities (NYSE: MAA), which we added to the Lifelong Income Portfolio in late January 2014.
By early 2015, however, high valuations had become a problem in the sector’s more popular names, and our recommended list was down to just three niche opportunities: W.P. Carey (NYSE: WPC), CorEnergy Infrastructure Trust (NYSE: CORR) and Outfront Media (NYSE: OUT). Those picks have scored an average gain of 10.7 percent, versus a return of just 6.5 percent from the Dow Jones US Real Estate Index.
Finally, in June 2016, we warned again of the danger posed by high valuations, particularly for REITs that figure prominently in popular exchange-traded funds (ETF) that offer one-stop exposure to the group. Our buy list had only two niche REITs: Landmark Infrastructure Partners LP (NSDQ: LMRK) and Lifelong Income Portfolio member W.P. Carey.
Thus far, our caution on this sector has been justified. Since last June, the Dow Jones US Real Estate Index has returned just 1.2 percent, including dividends. That poor showing lags the S&P 500’s 9.2 percent return. Our two picks also returned an average of 1.7 percent, despite regular quarterly dividend increases.