Key Takeaways
- • The FTSE Nareit All REITs Index generated 41.3 percent total returns in 2021 but has declined nearly 30 percent year-to-date as of October 2022, reflecting broader market volatility and sector headwinds.
- • Many publicly-traded REITs are currently trading below net asset value (NAV), creating potential buying opportunities despite macro headwinds, as underlying commercial real estate fundamentals remain strong.
- • David Rosenberg, managing director and senior portfolio manager at Harbor Group International (HGI) Capital Management, employs a dual-pronged investment strategy focused on identifying deep-value REIT positions and companies benefiting from supportive macro thematic trends in real estate.
- • Harbor Group International's Real Estate Securities Fund manages approximately $500 million in assets, while the parent firm maintains $19 billion in total assets under management across global real estate investment and management operations.
- • The disconnect between REIT equity prices and underlying net asset values presents a strategic entry point for investors who believe commercial real estate fundamentals will support asset values despite near-term equity market volatility.
Summary
The real estate investment trust sector has experienced significant volatility through 2022, reversing the strong performance delivered in 2021. Following a robust year in which the FTSE Nareit All REITs Index generated total returns of 41.3 percent, the sector has contracted nearly 30 percent year-to-date, caught up in the broader equity market selloff driven by rising interest rates and recession concerns.
Despite this headwind, a notable disconnect has emerged between REIT stock prices and the underlying value of the real estate assets held by these trusts. Many publicly-traded REITs are now trading below their net asset values, creating what some portfolio managers view as compelling investment opportunities. The fundamental strength of the commercial real estate sector itself has remained intact, underpinning the case that equity market weakness may have created a valuation disconnection ripe for opportunistic investment.
David Rosenberg, managing director and senior portfolio manager at Harbor Group International Capital Management, articulates a disciplined approach to navigating this environment. Rosenberg oversees the Harbor Group International Real Estate Securities Fund, which manages approximately $500 million in assets. The parent firm, Harbor Group International, is a leading global real estate investment and management platform with $19 billion in total assets under management. Rosenberg's strategy targets two primary opportunities: identifying REIT securities trading at significant discounts to the net asset value of their underlying real estate holdings, and investing in companies where macro thematic trends affecting real estate are particularly supportive of specific property types and the investment thesis.
This selective, value-oriented approach reflects a broader institutional view that current market conditions, while turbulent for REIT equities, may offer attractive entry points for investors with conviction in commercial real estate fundamentals and the patience to weather continued equity volatility.
Despite this headwind, a notable disconnect has emerged between REIT stock prices and the underlying value of the real estate assets held by these trusts. Many publicly-traded REITs are now trading below their net asset values, creating what some portfolio managers view as compelling investment opportunities. The fundamental strength of the commercial real estate sector itself has remained intact, underpinning the case that equity market weakness may have created a valuation disconnection ripe for opportunistic investment.
David Rosenberg, managing director and senior portfolio manager at Harbor Group International Capital Management, articulates a disciplined approach to navigating this environment. Rosenberg oversees the Harbor Group International Real Estate Securities Fund, which manages approximately $500 million in assets. The parent firm, Harbor Group International, is a leading global real estate investment and management platform with $19 billion in total assets under management. Rosenberg's strategy targets two primary opportunities: identifying REIT securities trading at significant discounts to the net asset value of their underlying real estate holdings, and investing in companies where macro thematic trends affecting real estate are particularly supportive of specific property types and the investment thesis.
This selective, value-oriented approach reflects a broader institutional view that current market conditions, while turbulent for REIT equities, may offer attractive entry points for investors with conviction in commercial real estate fundamentals and the patience to weather continued equity volatility.
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