S&P Global Market Intelligence offers our top picks of real estate news stories published throughout the week.
Faster-than-expected U.S. vaccinations and declining COVID-19 cases have pushed real estate investment trusts into fully valued territory, as generalist investors have returned to the sector in search of recovery plays, Mizuho Securities USA analysts wrote in a June 3 note.
While REIT gains during 2021 are not surprising given the economic rebound and potential for further stimulus, the sector’s outperformance versus the S&P 500 — about 22% price gains for the year compared to 13% gains for the broader market — was unexpected, they added.
Given high valuations throughout the REIT space, “it’s a stock picker’s market,” and investors seeking to outperform benchmarks should pursue relative values within sectors, the analysts argued. They named Alexandria Real Estate Equities Inc., AvalonBay Communities Inc., Invitation Homes Inc. and Realty Income Corp. as their top picks, citing strong earnings growth and stock-specific catalysts relative to peers in their property sectors.
Fuller values could also produce more M&A activity in the coming months, the Mizuho team added, with the highest potential for deals among healthcare, strip center and triple-net property REITs, given the high number of smaller companies at wider valuation multiples in those sectors.
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