More Developments from Hotel and Net Lease Retail REITs


  1. Hotel REITs has occupied the bottom portion of our weekly performance chart, after topping the chart the prior week.
  2. Hotel REITs will be subjected to a higher volatility in function for a lack of a catalyst.
  3. Also, threats such as having a narrowing gap between supply and demand and being able to quickly adjust rates do not help the sector.
  4. Overpriced stocks in the net lease retail and self-storage have also dropped.
  5. Whatever caused the stock to drop appears to have been limited to just equity REITs.

Two weeks ago, hotel REITs has monopolized our headlines for occupying the top position of our weekly performance chart. However, last week they were at the bottom. Yet at the same time, hotel REITs continues to be an attractive option with their lower multiples and high dividends yields. They continue to be very sensitive to market fluctuations. People who buy Hotel REIT should take into consideration that they will be exposed to higher levels of volatility.

I have not observed any changes in the lodging fundamentals that makes me think that a sector’s share appreciation will happen anytime soon. While it is true that demand has been greater than supply; demand growth has decreased and hotel pipeline has increased. This has led to a narrow gap between supply and demand, which shows that supply will soon catch up to demand.

Although some people seem to favor hotels in a rising interest rate environment, the Fed has already signaled that it should be a slow process. Hotels are quick to adjust their daily rates if inflation kicks in. However, remember that this a double-edged sword, since they might also have to reduce their rates. This is not unlikely in an environment where people keep saying that a recession is right around the corner. Alternatively, you might try some individual stocks and look for more robust portfolios.

Overpriced stocks in a net lease retail and self-storage have dropped as well. Popular REITs, such as Realty Income and National Retail Properties have also been at the bottom of our weekly performance chart. According to Seeking Alpha, a slight increase in the 10-year yield has prompted a selloff of REITs (click here).

The fact the Reality Incomes has been overpriced has been propagated among REIT investors which fueled all sorts of opinions. I have seen arguments that are defending this is a good moment to short the stock, or that the stock could be reaching new highs, much like the heights that the Federal Realty Investment and Public Storage enjoy.

Whatever has caused the stock drop last week appears to have been limited to equity REITs, where more than 3/4 of the stocks returned negative. In comparison, the S&P 500 was slightly up and several dividend ETFs were positive. If the cause is really interest rate uptick, this is just a sample of what will happen in the short term when the Fed raises interest rates again.

Source: Realty Income Corporation(NYSE:O), National Retail Properties, In(NYSE:NNN), Yahoo!Finance

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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