The State of REITs: June 2024 Edition

by | Jun 24, 2024 | The State of REITs

  • After a rough start to the year, REITs partially bounced back in May with a +2.51% average total return.
  • Small cap REITs (-0.48%) averaged a negative return in May, but micro caps (+5.09%), large caps (+4.28%), and mid caps (+3.35%) were solidly in the black.
  • 03% of REIT securities had a positive total return in May.
  • 14 out of 18 REIT property types averaged a positive total return in May. Self-storage (+8.2%) led the REIT sector while Advertising REITs (-3.47%) underperformed.
  • The average REIT NAV discount narrowed from -20.02% to -17.50% during May. The median NAV discount narrowed from -19.77% to -17.08%.
REIT Performance

Equity REITs partially recovered from a poor performance in April with a +2.51% total return in May. REITs lagged the broader market as they were outpaced by the Dow Jones Industrial Average (+2.6%), S&P 500 (+5.0%) and NASDAQ (+7.0%). The market cap weighted Vanguard Real Estate ETF (VNQ) outpaced the average REIT in May (+4.56% vs. +2.51%) and has narrowly outperformed year-to-date (-4.98% vs. -5.45%). The spread between the 2024 FFO multiples of large cap REITs (16.6x) and small cap REITs (12.4x) narrowed in May as multiples expanded 0.8 turns for large caps and 0.2 turns for small caps. Investors currently need to pay an average of 33.9% more for each dollar of FFO from large cap REITs relative to small cap REITs. In this monthly publication, I will provide REIT data on numerous metrics to help readers identify which property types and individual securities currently offer the best opportunities to achieve their investment goals.

Micro cap REITs (+5.09%) outpaced their larger peers again in May. Large caps (+4.28%) and mid caps (+3.35%) both averaged solid gains, but small caps (-0.48%) badly underperformed. Large caps have outperformed small caps by 355 basis points through the first five months of 2024.
14 out of 18 Property Types Yielded Positive Total Returns in May

77.8% of REIT property types averaged a positive total return in May. There was a relatively narrow 11.7% total return spread between the best and worst-performing property types. Self Storage (+8.20%) averaged a higher total return than all other property types in May, led by Global Self Storage (SELF) (+18.62%) which soared on the May 7th news that a takeout offer had been made by Etude Storage Partners LLC. It was reported that Etude initially offered $5.52/share, which was rejected and then the offer was raised to $6.05/share, which was also rejected. Etude then further increased the offer to $6.15/share.

The worst-performing property type in May was Advertising (-3.47%), which was dragged down by a rough month for OUTFRONT Media (OUT) (-8.89%).

Infrastructure (-27.93%) and Office (-13.24%) have averaged the worst total return year-to-date. Advertising (+9.02%) and Single Family Housing (+7.83%) were the top performing property types over the first 5 months of 2024.
The REIT sector as a whole saw the average P/FFO (2024Y) increase 0.1 turns in May from 12.8x up to 12.9x. 77.8% of property types averaged multiple expansion and 22.2% saw multiple contraction. Land (27.3x), Data Centers (26x), Single Family Housing (19.7x), Multifamily (18.9x), and Manufactured Housing (18.2x) currently trade at the highest average multiples among REIT property types. Malls (7.9x), Diversified (7.9x), Office (8.1x), and Hotels (9.2x) are the only property types that average single-digit FFO multiples.
Performance of Individual Securities

Power REIT (PW) (+59.72%) sharply bounced back into positive territory year to date after a brutal April performance (-40.78%). PW saw a large share price increase on May 10th, the day they reported Q1 earnings. Power REIT announced the sale of two cannabis cultivation properties in Colorado to an affiliate of a current tenant. PW also sold their interest in a ground lease in Massachusetts.

Uniti Group (UNIT) (-45.04%) unleashed a torrent of bad news on investors in May with a 2024 earnings guidance cut, the announcement of a merger with Windstream on terms that are deeply unfavorable to UNIT shareholders and the offering of $300M of senior notes at a 10.5% interest rate.

74.03% of REITs had a positive total return in May. During the first five months of 2023, the average REIT had a -6.38% return. The REIT sector began the first five months of 2024 with a slightly less bad -5.45% total return.


Dividend Yield

Dividend yield is an important component of a REIT’s total return. The particularly high dividend yields of the REIT sector are, for many investors, the primary reason for investment in this sector. As many REITs are currently trading at share prices well below their NAV, yields are currently quite high for many REITs within the sector. Although a particularly high yield for a REIT may sometimes reflect a disproportionately high risk, there exist opportunities in some cases to capitalize on dividend yields that are sufficiently attractive to justify the underlying risks of the investment. I have included below a table ranking equity REITs from highest dividend yield (as of 05/31/2024) to lowest dividend yield.

Although a REIT’s decision regarding whether to pay a quarterly dividend or a monthly dividend does not reflect on the quality of the company’s fundamentals or operations, a monthly dividend allows for a smoother cash flow to the investor. Below is a list of equity REITs that pay monthly dividends ranked from highest yield to lowest yield.

REIT Premium/Discount to NAV by Property Type

Below is a downloadable data table, which ranks REITs within each property type from the largest discount to the largest premium to NAV. The consensus NAV used for this table is the average of analyst NAV estimates for each REIT. Both the NAV and the share price will change over time, so I will continue to include this table in upcoming issues of The State of REITs with updated consensus NAV estimates for each REIT for which such an estimate is available.


The large cap REIT premium (relative to small cap REITs) widened in May and investors are now paying on average about 34% more for each dollar of 2024 FFO/share to buy large cap REITs than small cap REITs (16.6 x/12.4x – 1 = 33.9%). As can be seen in the table below, there is presently a strong positive correlation between market cap and FFO multiple.

The table below shows the average NAV premium/discount of REITs of each market cap bucket. This data, much like the data for price/FFO, shows a strong, positive correlation between market cap and Price/NAV. The average large cap REIT (-6.18%) and mid cap REIT (-9.49%) trade at single-digit discounts to NAV. Small cap REITs (-24.67%) trade at just over 3/4 of NAV and micro caps on average trade at less than half of their respective NAVs (-51.10%).

Bankruptcy filings in May decreased slightly month-over-month but were higher than in May 2023. Year-to-date bankruptcies are in line with the same period last year (277 → 275) but are higher than in the first 5 months of any year from 2011-2022.

8 REITs announced dividend increases in May. 7 of the raises are quarterly and 1 of which is monthly. In total, 44 REITs have announced dividend hikes during the first 5 months of 2024. The biggest hike was from Summit Hotel Properties (INN) with a 33.3% increase, but the dividend remains 55.6% lower than it was at the end of 2019.

The REIT sector saw same-store NOI growth of +3.8% in Q1 2024. Heath Care and Industrial REITs led the sector in growth with even Office REITs averaging +0.3% SS-NOI growth. Only Self-storage REITs averaged negative SS-NOI growth in Q1.

UMH Properties (UMH) (+15.6%), Veris Residential (VRE) (+14.2%) and Terreno Realty (TRNO) (+13.1%) achieved the strongest same-store NOI growth in the first quarter of the year. 8 of the 10 REITs with the highest SS-NOI growth are in Health Care, Office or Industrial.

Although some Office REITs have already returned to positive SS-NOI growth, Office still accounted for 6 of the 10 biggest declines in SS-NOI in Q1. Hudson Pacific Properties (HPP) (-12.9%), and Office Properties Income Trust (OPI) (-12.0%) were the Office REITs that continued to have the biggest year-over-year declines in same-store NOI with both seeing double-digit negative growth.

While much of the media coverage of the REIT sector has focused heavily on the negative impact of a higher for longer rate environment, less attention has been paid to their solid property-level fundamentals. It’s true that the higher cost of capital that REITs are facing due to interest rates impacts their ability to make accretive acquisitions and developments. However, due to strong internal growth and share buybacks, many REITs have been able to continue to drive growth in FFO/share and AFFO/share. REITs kicked off 2024 with a strong +3.8% average SS-NOI growth in Q1. Some REITs have also capitalized on their large discounts to NAV by aggressively buying back shares for well below fair value. At current valuations, a historically large number of REITs are attractively priced even if forecasted rate cuts fail to materialize. In the event that interest rates do in fact move materially lower over the next year, REITs are well-positioned to outperform the broader market.

Important Notes and Disclosure

All articles are published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.

We cannot determine whether the content of any article or recommendation is appropriate for any specific person. Readers should contact their financial professional to discuss the suitability of any of the strategies or holdings before implementation in their portfolio. Research and information are provided for informational purposes only and are not intended for trading purposes. NEVER make an investment decision based solely on the information provided in our articles.

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Past performance does not guarantee future results. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. Historical returns should not be used as the primary basis for investment decisions. Although the statements of fact and data in this report have been obtained from sources believed to be reliable, 2MCAC does not guarantee their accuracy and assumes no liability or responsibility for any omissions/errors

Commentary may contain forward-looking statements that are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MCAC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts, and findings in this article.

Through October 2021, The State of REITs was published exclusively on Seeking Alpha by Simon Bowler, Sector Analyst at 2nd Market Capital Services Corporation (2MCSC).  Editions subsequent to October 2021 will be published on this website in addition to other platforms that may include Seeking Alpha.  2MCSC was formed in 1989 and provides investment research and consulting services to the financial services industry and the financial media. 2MCSC does not provide investment advice.  2MCSC is a separate entity but related under common ownership to 2nd Market Capital Advisory (2MCAC), a Wisconsin registered investment advisor.  Simon Bowler is an investment advisor representative of 2MCAC.  Any positive comments made by others should not be construed as an endorsement of the author's abilities to act as an investment advisor.

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