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U.S. REITS Industry Analysis

UpdatedOct 07, 2022
DataAggregated Company Financials
  • 7D-0.2%
  • 3M-13.3%
  • 1Y-21.9%
  • YTD-30.2%

Last week, the REITS industry hasn't moved much but Simon Property Group is up 6.2% in that time. As for the longer term, the industry has declined 22% in the last year. Earnings are forecast to grow by 7.7% annually.

Industry Valuation and Performance

Has the U.S. REITS Industry valuation changed over the past few years?

DateMarket CapRevenueEarningsPEAbsolute PEPS
Fri, 07 Oct 2022US$1.2tUS$177.4bUS$40.0b25.9x29.3x6.6x
Sun, 04 Sep 2022US$1.3tUS$177.4bUS$40.0b29.7x33.6x7.6x
Tue, 02 Aug 2022US$1.4tUS$171.1bUS$38.3b32.8x37.3x8.4x
Thu, 30 Jun 2022US$1.3tUS$168.8bUS$38.3b31.4x34.7x7.9x
Sat, 28 May 2022US$1.5tUS$169.6bUS$38.3b33.5x38.2x8.6x
Mon, 25 Apr 2022US$1.6tUS$168.3bUS$36.3b40.8x45x9.7x
Wed, 23 Mar 2022US$1.6tUS$171.1bUS$35.4b40.7x44.3x9.2x
Fri, 18 Feb 2022US$1.5tUS$169.1bUS$30.3b41.7x50x9x
Sun, 16 Jan 2022US$1.6tUS$168.1bUS$27.3b46.5x59x9.6x
Tue, 14 Dec 2021US$1.6tUS$167.9bUS$27.3b46.2x59.5x9.7x
Thu, 11 Nov 2021US$1.6tUS$170.8bUS$27.1b47.2x59.3x9.4x
Sat, 09 Oct 2021US$1.5tUS$163.2bUS$20.9b52x70.7x9.1x
Mon, 06 Sep 2021US$1.5tUS$162.8bUS$21.0b51.6x73.4x9.5x
Wed, 04 Aug 2021US$1.5tUS$162.7bUS$21.0b50.5x70.5x9.1x
Sat, 08 May 2021US$1.4tUS$150.2bUS$16.0b47.4x84.8x9x
Tue, 09 Feb 2021US$1.2tUS$153.2bUS$16.1b41.9x71.9x7.6x
Mon, 02 Nov 2020US$1.0tUS$146.7bUS$17.9b35.4x56.1x6.8x
Thu, 06 Aug 2020US$1.1tUS$150.4bUS$21.4b35.6x49.5x7x
Sun, 10 May 2020US$989.9bUS$160.5bUS$27.4b28.9x36.2x6.2x
Sat, 01 Feb 2020US$1.2tUS$167.1bUS$30.6b39.2x40.5x7.4x
Tue, 05 Nov 2019US$1.2tUS$166.2bUS$30.0b40.8x41.3x7.5x
Price to Earnings Ratio


Total Market Cap: US$1.2tTotal Earnings: US$30.0bTotal Revenue: US$166.2bTotal Market Cap vs Earnings and Revenue0%0%0%
U.S. REITS Industry Price to Earnings3Y Average 53.5x202020212022
Current Industry PE
  • Investors are pessimistic on the American REITs industry, indicating that they anticipate long term growth rates will be lower than they have historically.
  • The industry is trading at a PE ratio of 29.3x which is lower than its 3-year average PE of 53.5x.
  • The 3-year average PS ratio of 8.0x is higher than the industry's current PS ratio of 6.6x.
Past Earnings Growth
  • The earnings for companies in the REITs industry have grown 10% per year over the last three years.
  • Revenues for these companies have grown 2.2% per year.
  • This means that more sales are being generated by these companies overall, and subsequently their profits are increasing too.

Industry Trends

Which industries have driven the changes within the U.S. Real Estate industry?

US Market3.28%
Real Estate0.19%
Hotel and Resort REITs5.42%
Retail REITs3.40%
Diversified REITs2.15%
Industrial REITs0.72%
Specialized REITs-0.90%
Office REITs-1.00%
Residential REITs-1.68%
Healthcare REITs-3.04%
Industry PE
  • Investors are most optimistic about the Residential REITs industry even though it's trading below its 3-year average PE ratio of 52.4x.
    • Analysts are expecting annual earnings growth of 2.5%, which is lower than the prior year's growth of 57.2% per year.
Forecasted Growth
  • Analysts are most optimistic on the Hotel and Resort REITs industry, expecting annual earnings growth of 27% over the next 5 years.
  • In contrast, the Diversified REITs industry is expected to see its earnings growth to stay flat over the next few years.

Top Stock Gainers and Losers

Which companies have driven the market over the last 7 days?

CompanyLast Price7D1YValuation
SPG Simon Property GroupUS$94.686.2%
VICI VICI PropertiesUS$30.965.3%
WY WeyerhaeuserUS$29.175.1%
GLPI Gaming and Leisure PropertiesUS$46.466.6%
KIM Kimco RealtyUS$19.145.9%
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Latest News

Oct 06

Digital Realty: Fallen From The Sky, But Still Not Convinced

Summary Digital Realty Trust has been de-rated since reaching unsustainable levels in 2021. Therefore, we postulate its nearly 45% decline from its highs is justified. Accordingly, investors need to ask if the selloff is over. We believe the steep and rapid decline could have reached a near-term bottom. But, we still don't think DLR is undervalued and could face structural headwinds moving ahead. We discuss why investors should be wary about adding at these levels unless you have a very high conviction of its execution and competitive moat against the fast-growing cloud providers. Thesis Leading data center REIT Digital Realty Trust, Inc. (DLR) has seen its stock crater since forming its overvalued highs in December 2021. With growth slowing as Digital Realty couldn't sustain its momentum, we believe the battering is justified. As a result of the nearly 45% haircut, DLR's valuation is more reasonable now but still not undervalued. We prefer to use its EBITDA multiples to evaluate its valuation levels, which indicate its overvaluation zones back in late 2021. As a result, we think the market has gotten its de-rating on point, as Digital Realty is still expected to commit high CapEx spending to sustain its tepid revenue growth. Coupled with more intense competition from the hyperscalers moving forward, we believe it's appropriate for investors to demand a more significant margin of safety to mitigate their risks of potential underperformance. Accordingly, we rate DLR as a Hold for now, even though we postulate that it should be consolidating at a robust near-term bottom. DLR Was Clearly Overvalued DLR NTM EBITDA multiples valuation trend (koyfin) As seen above, DLR surged well above its 10Y mean at its highs in 2021, as its NTM EBITDA multiples reached the two standard deviation zone over its 10Y mean. Therefore, we assess that DLR was clearly overvalued, as investors piled on to its unsustainable growth rates in 2021. However, as its growth slowed markedly in 2022, it could no longer hold on to those valuations. However, despite falling nearly 45% from its highs, DLR last traded at an NTM EBITDA multiple of 17.5x, close to its 10Y mean of 18.6x. Hence, we deduce that DLR remains far from undervalued. Therefore, investors looking for a more generous margin of safety may find it unattractive at the current levels. High CapEx Spending Demands Further Caution Digital Realty Revenue change % and Adjusted EBITDA change % consensus estimates (S&P Cap IQ) Digital Realty expects its business model to be pretty resilient through the economic cycle and therefore does not anticipate a marked deterioration in its bookings moving ahead. The consensus estimates (bullish) also corroborate management's optimism, suggesting a reacceleration in growth through FY23. However, even the bullish Street analysts do not expect its growth cadence to reach its heights in FY20/21. We also believe that the cloud providers could continue to offer intense competition moving ahead as they bid to move more companies toward the cloud. Notably, cloud services spending still increased by 33% in Q2, highlighting that companies were advancing rapidly with their cloud transition. Coupled with the hyperscalers moving further into specialized business verticals to expand their TAM, it could be a structural impediment against Digital Realty's growth opportunities in the medium term. Digital Realty Adjusted EBITDA margins % and CapEx margins % consensus estimates (S&P Cap IQ) Furthermore, we believe the CapEx commitments to sustain its business model are very high, reaching nearly 57% in FY21. Therefore, we are concerned about whether Digital Realty's business model can be sustainable if the competition from cloud providers turns out to be more intense than anticipated. As such, it could impact its cash flow profitability markedly, leaving the company with legacy data center assets that could face significant impairments. Hence, we don't find the underlying profitability of Digital Realty attractive enough at the current valuations. Is DLR Stock A Buy, Sell, Or Hold? DLR price chart (monthly) (TradingView) DLR's NTM dividend yields have improved to 4.96%, above its 10Y mean of 4.12%. But, we don't find its yield particularly attractive, which we believe reflects its premium valuation, given its secular growth opportunities.

Oct 06

Crown Castle's Growth Prospects Outweigh Inflation Risks

Summary Crown Castle stock has been hit alongside other REITs due to higher interest rates and inflation concerns. However, the business is performing well with 7 years of contracts and significant benefit from growing mobile data usage. While its small cell-sites have lower annual price increases, higher starting yields, operational leverage, and a strong balance mitigate this risk. At a nearly 4% yield with high-single digit growth prospects, Crown Castle is attractive for income investors. Shares of Crown Castle (CCI) have been a poor performer over the past year with the stock sitting at a new 52-week low. Given the increasing need for wireless infrastructure as mobile data usage increases, this performance may be surprising. However, it is consistent with the performance of many other real estate investment trusts (REITs), which have been hammered by higher interest rates. Still with a history of strong dividend growth, which should continue well into the future, getting in at a 4% yield is an attractive entry point. Seeking Alpha First, it is important to note the underlying business continues to perform well. In the company's second quarter, site rental revenue rose by 10% to $1.57 billion, driving a 26% increase in income from continuing operations to $421 million and a 13% increase in adjusted EBITDA to $1.08 billion. Adjusted funds from operations (FFO) came in at $1.80, and this measure is critical to track as it provides context as to how much CCI can pay out in dividends. This measure was up a more modest 5%, and was a bit short of the $1.91 consensus. Much of this shortfall was due to the timing of revenue from fixed-rate inflation escalators in its long-term contracts. This timing issue is a key reason adjusted FFO grew more slowly than other figures, and it does even out over time. Indeed the company maintained its AFFO guidance of about $7.36 per share and 10% revenue growth to about $6.3 billion. Crown Castle has been a long-term beneficiary of growing wireless data usage. After all, the more we rely on wireless networks, the larger the capacity those networks need to have, and so the more infrastructure they need. The major carriers like Verizon (VZ), T-Mobile (TMUS), and AT&T (T) will rent space on CCI's infrastructure to operate their network rather than owning all of the cell phone towers and small-sites themselves. As you can see below, mobile data usage has exploded an extraordinary 108x since 2010. Crown Castle Crown Castle has been a significant beneficiary of this growth, building out a larger network of assets. This has enabled it to be a steady dividend-grower with an 8-year growth rate of about 9%. At its current $5.88 dividend rate, it is just paying out 80% of its adjusted FFO. CCI typically does its annual dividend increase in December, and given this sustainable coverage level and growing FFO, another 7-10% dividend increase is likely in my view. Crown Castle Importantly, this explosive growth in the wireless industry that has fueled a great decade for Crown Castle is unlikely to end soon. We are still in the early innings of 5G, and accordingly, the wireless industry anticipates 25% annual data usage growth through 2027. 5G, with its greater speed, reliability, and capacity, provides both opportunity for greater commercial use, with companies like John Deere (DE) building smart tractors, and consumer use with eventually some consumers using wireless internet rather than broadband to stream Netflix (NFLX) and others. Meeting this demand requires much more infrastructure. In fact, over the past two years, nearly 62,000 cell sites were adding, more than the growth seen in the seven years from 2011-2018. With a portfolio of 40,000 towers, 115,000 small cell sites, and 85,000 miles of fiber, CCI is at the center of this growth industry. While we are all familiar with towers, an increasing growth area for the business are small cell sites as carriers are trying to increase the density of their coverage in urban centers to have the capacity to meet soaring data demands. These sites are usually affixed on utility poles or the side of buildings, rather than being stand-alone structures. Because of how important they are to urban 5G, small cell sites are expected to grow at least at a 15% pace over the next four years. As with the more established tower business, when CCI rents a small cell site to a carrier it does so for a term of 10 years, providing a set stream of cash flow. Indeed, the company has $42 billion in signed contracts to fulfill, with an average term of about 7 years. This provides CCI with extremely predictable cash flow over the medium term. Relative to towers, small cell sites provide a higher starting yield of 6-7% vs 3-4%, so for the same capital outlay, year one cash flow is twice as high-this is a positive. Offsetting this, the annual price escalator is just 1.5% vs 3% for towers. As a consequence, if costs rise substantially, margins get squeezed more quickly in small-cell sites. Given the elevated inflation environment we are in, this has been a concern for the stock. While I recognize this risk, I think it is important to remember the power of the higher starting yield. Below, I show the 10-year cash flow of a $100 tower or small cell site investment, using the 3% and 1.5% escalators. Even with the slower growth rate, small-cell sites throw off substantially more cash flow. When a contract term ends after 10 years, there is also the potential to reprice higher in a new contract if costs have risen that much faster. internal calculation I also think it is important to understand the inflation risk, which management discussed on their last earnings call. CCI doesn't build sites speculatively; it negotiates with a carrier before deploying a node. So if building materials cost or labor have risen, those price increases are embedded and the cost of a node will be $110 instead of $100, that $110 will be the basis for setting the negotiated 6-7% starting yield. From then on, CCI bears the operational risk. If the cost of maintaining the site rises faster than expected, that cost is borne by CCI, but conversely if they operate the site better, they benefit. Either way, the contract rises 1.5% per year.

Oct 05

AvalonBay: Positioned To Accelerate Dividend Growth

Summary AvalonBay shares have underperformed this year as higher rates have hit real estate valuations. However, the company is performing well with significant rental increases as its key markets rebound from post-COVID weakness. The company is also diversifying into faster growth markets, which should accelerate operating income growth. The rental backdrop is also constructive given higher mortgage rates and a housing shortage. AVB is positioned to raise its dividend high-single-digits in coming years. Just as low interest rates can fuel increases in real estate valuations, rising interest rates are a significant headwind as financing costs are higher and discount rates more punitive. With the Federal Reserve aggressively raising interest rates, many real estate stocks have been hit hard, and AvalonBay Communities (AVB) is among them, down over 25% year to date, essentially wiping out all gains over the past five years. Seeking Alpha AVB is among the nation’s top apartment real estate investment trusts (REITs) with a focus on the higher-end of the multifamily rental market. While the company’s focus in large, legacy markets in the Northeast and West Coast is not ideal, investors are able to purchase shares at a discounted valuation, and its core markets are recovering. The stock currently offers a 3.4% dividend yield, and given strong rental market fundamentals, I believe go-forward dividend growth should exceed the 2.54% five year growth rate. Despite its declining share price, AVB is actually performing quite well. Its second quarter core funds from operations (FFO) were up 23% year on year to $2.41. This is the critical figure for a REIT as it shows what can be paid out for a sustainable dividend. $0.41 of the $0.45 gain came from rising same store operating income. In other words, each multifamily complex is generating substantially more cash flow than a year ago. In fact, same store revenue rose 13.1% from a year ago as rents rose 12.9%. Because costs only rose about 5%, same store net operating income rose about 17%. As you can see below, rental increases were strong across all regions. AvalonBay’s exposure to cities like New York and San Francisco made the COVID downturn painful as they were relative underperformers with elevated concessions required to maintain occupancy. However, they are now coming back strongly. AvalonBay This is not just an AvalonBay phenomenon but a market-wide one. This chart below from ApartmentList is particularly interesting. Unsurprisingly since the start of COVID, Sun Belt cities like Tampa, Miami, and Tucson have experienced some of the fastest rental growth thanks to continued population inflow. But over the past six months, the legacy cities where AvalonBay operates in like New York, Boston, and San Jose are now leading the way, making significant comebacks. While the Sun Belt still has undoubtedly has more favorable medium-term demographics, it seems reports of these big cities’ demise have been a bit overstated. ApartmentList With AvalonBay getting about 90% of its operating income from the Northeast and West Coast, it’s geographic mix is not ideal in my view versus a REIT like Mid-America Apartment (MAA), which operates primarily across the Sun Belt. However, as we are seeing, these markets still can generate substantial rental income and growth. Importantly, AVB is pivoting and trying to diversify its geographic mix with expansion ongoing across these faster growth Sun Belt regions, which should enhance its growth profile. AvalonBay These expansion projects underway are expected to boost NOI by about $125 million over the next two to three years. That is about $0.90 per share, or a 9% increase from the $9.86 in FFO management expects to generate. Just given the existing size of its legacy operations, diversification will take time, but the plan is in place to gradually shift the business to gain exposure to faster growth markets. In the meantime, legacy markets are bouncing back hard. AvalonBay It is important to note that AVB has the balance sheet to finance expansion projects even in a period of rising interest rates, AVB is running leverage of just 4.9x EBITDA below its 5-6x target. Carrying less debt makes its cash flow less impacted by moves in interest rates. This is particularly the case because the average maturity on its debt is 8.4 years, meaning most of its interest costs were locked in when rates were low with limited refinancing needs over the next few years. This position the company to navigate the coming volatile period well. Additionally with leverage below target, if assets in growth markets come on the market at distressed valuations, AVB has the financial flexibility to make acquisitions. This could accelerate its growth and diversification efforts. While higher rates are causing fear in real estate investors, I think that apartment owners are well positioned to handle it. As you can see below, when mortgage rates spiked in 1999, 2005, and 2020, rental inflation subsequently accelerated. As buying a home becomes more expensive, more Americans who would otherwise buy a home are pushed back into the rental market, boosting demand, and increasing prices. St. Louis Federal Reserve Additionally, America is operating with a housing shortage. After building nearly 15 million homes a decade in the second half of the 20th century, we overbuilt during the housing boom (17 million) but then overcorrected last decade, building just 9 million homes. This has left America 2-4 million homes short vs trend, but people still have to live somewhere. This is why housing, either buying or renting, has steadily grown more expensive. And with higher rates likely to slow home construction, these supply issues are set to persist.







Sep 30

Why Welltower Is A Beaten-Down Buy For Turbulent Times

Summary Welltower's stock price is now trading materially below its recent highs. It's seeing a strong rebound in its senior housing segment, with revenue outpacing expense growth. It has a strong balance sheet and pays a well-covered dividend. Many wonderful companies had seen their pricing get stretched in recent months, but that no longer appears to be the case. There are lots of value opportunities to be had in the current market, but diversification is key to sleeping well at night. For those seeking REIT income from a trusted brand with long-term tailwinds, they may want to consider Welltower (WELL). Welltower is now trading well below its near-term high of $86 achieved as recently as August, and in this article, I highlight why now may be a great buying opportunity. WELL Stock (Seeking Alpha) Why WELL? Welltower is an S&P 500 Company with over 40 years of investing in the healthcare real estate space. It currently owns a diversified portfolio of 1,800+ healthcare properties in North America and overseas, including 100 properties in both Canada and the United Kingdom. Both of these countries have mature healthcare systems that operate in a similar fashion to the United States. It's no secret that Welltower has seen a tough operating environment over the past 2 years due to COVID and its impact on senior housing. However, it appears that the company is starting to turn the corner, as same-store occupancy improved by 100 basis points sequentially and 500 basis points YoY to 78.8% in the second quarter. This accompanied same-store revenue growth of 11.5% YoY for the senior housing segment, which encouragingly is at a faster pace than same-store expense growth of 10.5%. This contributed to total same-store NOI growth of 8.7%, as the strong rebound in the senior housing segment was offset by the slower and steady NOI growth of 2.5% for the medical office portfolio. Potential headwinds include well-publicized wage inflation in the healthcare segment, which may weigh on profitability in WELL's SHOP portfolio. However, the aforementioned revenue outpacing expense growth shows that this trend is stabilizing. In addition, WELL is better positioned than more leveraged REITs for a rising rate environment, as it carries a BBB+ rated balance sheet and a reasonably low 44% long-term debt to capital ratio, and it pays well-covered dividend with a 71% payout ratio (based on Q2 FFO/share of $0.86). This leaves plenty of retained capital to pay down debt or fund development. Looking forward, the long-term favorable demographics for Welltower shouldn't be ignored, given the sizeable baby boomer population. This was highlighted by Morningstar in its recent analyst report: The baby boomer generation is starting to enter its senior years and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well-positioned to take advantage of these industry tailwinds. In our view, Welltower will benefit from these industry tailwinds because of its portfolio of high-quality assets connected to top operators in the senior housing, skilled nursing facilities, and medical office buildings segments. The company has also spent years forming and developing relationships with many of the top operators in each segment. These relationships allow Welltower to push revenue enhancing initiatives and cost-control efficiencies at the property level, creating net operating income growth above the industry average, and provide a natural pipeline of acquisition and development opportunities to meet the needs of its growing operating partners. Welltower's management team is forward-thinking and should be able to produce strong internal growth and accretive external growth.

Aug 23

SBA Communications: Recent Results Impressive

SBA Communications saw impressive financial results in the most recent quarter. The company has continued to increase total assets while reducing net debt. In spite of risks posed by inflation, I take an optimistic view on the company's long-term prospects. Investment Thesis: A rising total assets to net debt ratio along with strong revenue growth could allow the stock to climb higher from here. In a previous article back in June, I made the argument that should SBA Communications (SBAC) be able to demonstrate growth in total assets relative to long-term debt - the stock could see upside from here. My reason for making this argument was that while the continued rollout of 5G is expected to increase wireless infrastructure demand going forward - investors will want to see evidence that SBA Communications can comfortably scale its existing infrastructure without greatly increasing its long-term debt. Since June, we have seen the stock trend upwards: investing.com The purpose of this article is to assess whether upside can continue from here - given recent Q2 2022 results. Performance When comparing with December 2021 - we can see that total assets relative to long-term debt has increased in June 2022 - with total assets rising and long-term debt falling: December 2021 June 2022 Total assets 9,801,699 10,011,937 Long-term debt 12,278,694 11,817,504 Total assets to long-term debt ratio 79.82% 84.72% Source: SBA Communications Corporation Second Quarter 2022 Results What is also encouraging is that the company's period end leverage ratio - or net debt divided by annualized adjusted EBITDA - is currently at a five-year low, meaning that the company is taking on less debt relative to the earnings it is generating. SBA Communications Corporation Supplemental Financial Data: Second Quarter 2022 From a more holistic standpoint - we can see that site leasing and site development revenue are both up by double digits as compared to Q2 2021 - and in spite of a decrease in earnings per share due to FX losses - earnings growth excluding FX actually rose by over 40%. SBA Communications Corporation Reports Second Quarter 2022 Results In this regard, I take the view that the company's recent quarterly results are quite encouraging and the stock could continue to see upside from here. Looking Forward Going forward, the main risk for SBA Communications - as for other companies in the industry - is inflation.