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Quarter-End Insights

Real Estate: Enter With Caution

REITs appear fairly valued on average, and some rockiness could be on the horizon, but opportunity exists within certain asset classes.

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  • Morningstar's real estate coverage is trading at a 2% discount to our fair value estimates.
  • We view themes in commercial real estate as generally defensive in nature, with lingering concerns about increasing bond yields associated with future rate hikes. However, we continue to focus on underlying performance, which has remained healthy overall, as REITs have been focused on repositioning and strengthening their portfolios, deleveraging, and capital recycling. Construction of new property continues as firms look for higher returns, putting into question levels of new supply as economic uncertainty remains.
  • At current pricing, we see attractive investment opportunities scattered across various asset classes within our REIT coverage.  Vornado (VNO),  Public Storage (PSA), and CapitaLand Mall Trust (C38U) are each trading at noteworthy discounts to our respective fair value estimates.

Brad Schwer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.