The State of REITs: January 2022 Edition

by | Jan 18, 2022 | The State of REITs

  • 2021 was a very strong year for REITs, which had positive total returns in 10 out of the 12 months, including December’s +8.73% average return.
  • Large cap (+49.35%) and small cap REITs (+47.34%) surged in 2021, while micro caps (+22.36%) significantly underperformed.
  • 61% of REIT securities had a positive total return in December. 86.26% had a positive total return in 2021.
  • Multifamily (+14.76%) and Manufactured Housing (+12.82%) outperformed all REIT property types in December. Corrections (-7.74%) and Malls (-4.24%) were the only 2 REIT property types to suffer losses.
  • The average REIT NAV premium at the end of 2021 was +0.04%. The median NAV premium at year’s end was +2.29%.
REIT Performance

The REIT sector closed out a very strong 2021 with a particularly good December total return of +8.73%, which handily outpaced the broader market. The Dow Jones Industrial Average (+5.38%), S&P 500 (+4.36%), and the NASDAQ (+1.6%) also had a good month but didn’t come close to the huge returns of the REIT sector. The market cap weighted Vanguard Real Estate ETF (VNQ) outperformed the average REIT in December (+9.69% vs. +8.73%) and closed out the year slightly ahead of the YTD performance of the average REIT (+40.52% vs. +39.65%). The spread between the 2022 FFO multiples of large cap REITs (24.8x) and small cap REITs (17.2x) widened to 7.6 turns. 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.

Small cap (+10.65%) and large cap (+9.85%) REITs outperformed in December. Micro caps (+6.22%) continue to underperform. Large cap REITs (+49.35%) were the top performers in 2021, followed closely by small caps (+47.34%). Mid caps (+32.43%) and micro caps (+22.36%) underperformed in 2021.
18 out of 20 Property Types Yielded Positive Total Returns in December

90% of REIT property types averaged a positive total return in December, with a sizeable 22.5% total return spread between the best and worst performing property types. Corrections (-7.74%) and Malls (-4.24%) REITs had the worst average total return in December. Malls were the top performing REIT property type over the first 11 months of 2021 as they recovered from a disproportionately severe collapse in 2020. However, disappointing retail sales spooked investors, sinking Malls to the 3rd best performance of 2021 by year’s end.

Multifamily (+14.76%) and Manufactured Housing (+12.82%) REITs led all property types in December. Both property types were fueled by very strong rent growth as residential landlords continue to maintain strong pricing power and due to short leases (relative to commercial leases) have been able to much more quickly capitalize on rampant inflation.

Self Storage (+81.30%), Multifamily (+72.55%) and Malls (+71.20%) outperformed all other property types in 2021. Corrections was the only REIT property type in the red (-9.91%). Health Care (+11.09%) and Hotel (+19.98%) REITs were the only other property types that fell short of averaging a +20% return in 2021.
The REIT sector as a whole saw the average P/FFO (2022) increase 1.5 turns in December (from 17.3x up to 18.8x). The average FFO multiples rose for 85% and declined for 10% of property types in December. There are no recent 2022 FFO/share estimates for either of the Advertising REITs. Land (41.1x) and Industrial (31.7x) continue to see multiple expansion and remain at a higher multiple than all other REIT property types. Corrections (4.3x) and Malls (8.8x) both saw multiple contractions and are the only REIT property types trading at a single-digit multiple.
Performance of Individual Securities

Columbia Property Trust (CXP) was acquired by Allianz subsidiary PIMCO for $19.30/share on December 8th. The shares of the office REIT are no longer publicly traded.

American Tower (AMT) acquired CoreSite Realty (COR) on December 29th for $170/share in an all cash transaction. As a result, all 25 of COR’s properties are now a part of AMT.

Blackstone Real Estate Partners, an affiliate of Blackstone (BX) acquired the entire 15 hotel portfolio of Condor Hospitality Trust (CDOR) for $305M on November 22nd. CDOR then paid out a special liquidation dividend of $7.94/share on December 30th, its last day of trading.

Innsuites Hospitality Trust (IHT) badly underperformed their REIT peers in December (-27.33%), narrowly dropping into the red for 2021 (-0.31%). IHT had a roller coaster of a year in 2021 with the price peaking in June as much as +425% above where it ended 2020. However, IHT continued to rapidly fade over the remainder of the year, ending at a price right back where it started 2021.

Bluerock Residential Growth REIT (BRG) was the best performing REIT in December with a 79.52% total return. This huge spike in share price was driven by the announcement on December 20th that Blackstone (BX) will be acquiring BRG for $24.5/share, a massive premium to the $15.44 at which BRG had closed the prior trading day.

92.61% of REITs had a positive return in December with 86.26% in the black in 2021. In 2020, the average REIT had a poor -11.16% return, whereas in 2021 the average REIT saw a stellar total return of +39.65%.

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 12/31/2021) 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) significantly increased during 2019 and further expanded during 2020. However, it narrowed during 2021. Investors are now paying on average about 45% more for each dollar of 2022 FFO/share to buy large cap REITs than small cap REITs (24.8x/17.1x – 1 = 45.0%). 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 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 (+15.67%) trades at a double-digit premium to consensus NAV and mid cap REITs (-0.58%) on average trade right in line with NAV. Small cap REITs (-7.32%) trade at a single-digit discount, whereas micro caps on average only trade at approximately 2/3 of their respective NAVs (-33.79%).

REITs closed out an excellent 2021 with a solid outperformance in Q4. The REIT sector outpaced the S&P 500’s total return by more than 500 basis points in the fourth quarter.

REITs started to outperform the S&P 500 in March and continued to build upon that spread through the remainder of the year. In total, REITs outperformed the S&P 500 by about 1250 bps in 2021.

Multifamily, Industrial and Self Storage REITs unsurprisingly dominate the list of strongest REIT performances in Q4 and full year 2021. Multifamily REIT Bluerock Residential Growth REIT (BRG) more than doubled the return of any other REIT in Q4, pulling other multifamily REITs up with it on the hope that they too could be the target of M&A.

Poor quality of management fueled substantial share price declines of some REITs in an otherwise strong quarter for the sector. External management companies Ashford Inc. (AINC) and the RMR Group (RMR) are notorious for poor shareholder alignment and the REITs they manage have yielded far below average (and often negative) total returns for investors. Q4’s worst performer, Ashford Hospitality Trust (AHT), is managed by AINC. 3rd worst performer Service Properties Trust (SVC) and 6th worst Diversified Healthcare Trust (DHC) are both managed by RMR. Industrial Logistics Properties Trust (ILPT) is also managed by RMR and was the only Industrial REIT to provide investors a negative total return in Q4 despite exceptionally strong industrial fundamentals. Office Properties Income Trust (OPI), which also badly underperformed with only a +0.1% total return in Q4, suffered from having RMR as their external management.

Not all external managers, however, are corrupt or poorly aligned with shareholders. Gladstone Companies, which manages both Gladstone Commercial (GOOD) and Gladstone Land (LAND), is an external management team that is well aligned with shareholders and has a strong track record of success. Gladstone Companies once even voluntarily substantially cut their management fee during a period in which GOOD’s AFFO wasn’t yet sufficient to cover the dividend. This was far better for shareholder return than merely paying out an uncovered dividend or cutting the dividend. Their consistently extraordinary shareholder alignment has helped both GOOD and LAND significantly outperform in 2021.

Although any REIT has the potential to outperform in the short term, arguably the biggest factor in the long-term performance of a REIT is quality of management. As we head into 2022, doing thorough due diligence on the quality of management for any REIT before investing is likely to meaningfully improve an investor’s long-term total return.

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.

We may hold, purchase, or sell positions in securities mentioned in our articles and will not disclose this information to subscribers, nor the time the positions in the securities were acquired. We may liquidate shares in profiled companies at any time without notice. We may also take positions inconsistent with the information and views expressed on our website.

We routinely own and trade the same securities purchased or sold for advisory clients of 2MCAC. This circumstance is communicated to our clients on an ongoing basis. As fiduciaries, we prioritize our clients’ interests above those of our corporate and personal accounts to avoid conflict and adverse selection in trading these commonly held interests.

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.

S&P disclosure:   S&P Global Market Intelligence LLC. Contains copyrighted material distributed under license from S&P.

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