David Auerbach, REIT industry expert and the chief investment officer of Hoya Capital & Hoya ETFs, was a guest on the latest episode of Nareit’s REIT Report podcast.
Auerbach said fundamentals for REITs have remained “very strong,” despite the Federal Reserve’s tighter monetary policy. “If you look at the last quarter, public REITs reported same store property level income about 10% above where they were pre-pandemic. Many of these REITs have been preparing for winter for a long period of time, cleaning up their balance sheets, focusing less on variable rate debt.”
He added that investors want management teams to do four things—grow revenues, grow profits, grow guidance, and grow dividends. “Pretty much by and large, that's been what's happening across the spectrum in the REIT industry.”
During the interview, Auerbach also noted that:
- Hoya Capital is focused on dividend income growth and skewing its coverage toward small and mid-cap REITs. “We think there’s a big under-covered sector there.”
- The valuation gap between public and private real estate is still near the widest level it's ever been. “Looking at the extended sell-off since mid-2022, REITs are basically about as cheap as they've been in the last decade looking at a price to FFO multiple basis.”
- Hoya favors single family rentals, manufactured housing, and the industrial sector due to barriers to supply growth.
- Hoya Capital High Dividend Yield ETF is overweighted toward small and mid-cap REITs, focusing on property sectors with high dividend yields and low leverage, alongside a 10% allocation to REIT preferred stocks.
- The Hoya Capital Housing ETF is a diversified fund focused on residential REITs as well as home builder and sectors that support the housing industry, including service and technology companies. “We think this is a really unique way to take advantage of what's going on in the residential market.”