U.S. REITs: Balance of May

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Despite the announcement of the Fed minutes on May 18 and subsequent dip in share prices the following day, May, overall, was a good month for REIT stocks. The median stock increase was 2.7%, making it a good month for the industry.

Following a rapid appreciation of net lease retail, the pacing has finally slowed down. Stocks were slightly up, although it was not even across the sector. Agree Realty finally rallied by 10%, while Seritage Growth Properties plummeted by 13%. The performance of the remaining stocks was lukewarm. At the same time, investors seemed to have finally ended their fixation on Realty Income.

Self-storage continued its exuberant performance. In this case, all stocks went up and on average, the stock return for the sector was 7%. Extra Space Storage, which announced a 32% bump in dividend but a meager 3.3% dividend yield, was the best performing stock in the sector, rallying 9%. Keep in mind that the average U.S. dividend stock is in the low 2%. For that reason, 3.3% may be a bit meager compared to the peer REITs, but above average when compared to stocks in general.

The big surprise has been single family REITs. The three REITs that encompass the sector were up by 12%, as investors got carried away with the good Q1 results. For instance, Silver Bay Realty improved metrics, such as occupancy and net operating income, as a percentage of revenue. Also, it was the first time the that two companies released consolidated results from their merger. Colony Starwood Homes incorporated figures from both merging companies, Starwood Waypoint Residential Trust and Colony American Homes. In addition, American Home 4 Rent completed its merger with American Residential Properties.

Finally, apartment REITs with significant exposure on the west coast suffered over the last week. The news that the market might be weakening has left some investors worried. Several real estate research companies have already noticed the softening of the San Francisco rental market. The confirmation of this event by some REITs led to a small selloff of these stocks last week.

Source: Agree Realty Corp. (NYSE:ADC), Seritage Growth Properties (NYSE:SRG), Realty Income Corporation (NYSE:O), Extra Space Storage Inc. (NYSE:EXR), Dividend.com, Silver Bay Realty Trust Corp. (NYSE:SBY), Colony Starwood Homes (NYSE:SFR), American Homes 4 Rent (NYSE:AMH)

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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