BBRE ETF

U.S. equity markets rallied this week while benchmark interest rates tumbled to the lows of the year after Fed Chair Powell stated that the "time has come" to cut rates. The dovish pivot, underscored by an emphasis on "cooling labor markets," was further supported by data from the BLS showing that job growth has been far weaker than initially reported. The S&P 500 gained 1.4% this week, lifting the major benchmark to back within 0.5% of all-time record-highs. The Small-Cap 600 and Mid-Cap 400 each rallied nearly 3%.

We're at the halfway point of another consequential real estate earnings season, with 75 of the roughly 150 equity REITs and 19 of 38 mortgage REITs now having reported results. Amid an otherwise underwhelming earnings season across the broader equity market, REIT earnings results thus far have been materially better than anticipated, providing an added tailwind to rate-related optimism. Of the 65 equity REITs that have provided full-year guidance for Funds from Operations ("FFO"), 44 (68%) have raised their full-year outlook, while just 6 (8%) have lowered their outlook.

The REIT sector continued to recover in June with a +1.12% average total return, but closed out the first half of the year in the red (-3.86%). Micro cap REITs (-3.79%) averaged a negative total return in June, but small caps (+1.01%), mid-caps (+2.29%) and large caps (+2.88%) finished in the black. 65.58% of REIT securities had a positive total return in June.

Rate cuts have finally arrived, but why hasn't it benefitted REITs? What's needed to lift the REITs market. Why REITs are still struggling.

After a rough start to the year, REITs partially bounced back in May with a +2.51% average total return. Small-cap REITs (-0.48%) averaged a negative return in May, but micro caps (+5.09%), large caps (+4.28%) and mid caps (+3.35%) were solidly in the black. 74.03% of REIT securities had a positive total return in May.

U.S. equity markets posted mixed performance as investors parsed a perplexing slate of employment data, showing clear signs of cooling across essentially all metrics except for the "headline" payrolls print. The BLS reported that the U.S. economy added a robust 272k jobs in May, but prior months were revised substantially lower while the twin Household Survey showed a half-million job losses. The conflicting - and perhaps erroneous - employment data delayed the expected timeline for the Federal Reserve's rate-cutting cycle, while also raising the prospects of a data-driven policy error.

REITs are historically cheap right now. They also offer significant tax benefits. Here are 8 REIT tax advantages that are underappreciated.

REIT FFO/share growth in 2023 was stalled due to increased insurance premiums and property taxes. Property taxes jumped from $170B to almost $200B in 2023, while insurance costs doubled as a percentage of revenue. Higher insurance premiums reduced FFO margins by nearly 100 basis points, impacting FFO/share growth.

REITs saw a significant decrease in prices of 26% as interest rates rose, presenting potential investment opportunities. While there was a general decline, certain REIT sectors like industrial, multifamily, and manufactured housing demonstrated robust FFO/share growth. The pricing of REITs in the market did not accurately reflect their strong fundamental performance, resulting in mispricing in sectors such as retail, towers, and self-storage.