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Market Pulse March 2015
U.S. REIT Valuations Are Attractive
U.S. REIT valuations are at attractive levels relative to their four-year range, as seen in the first chart.
In the second chart, we show that REIT prices are near the middle of the four-year range relative to cash
flows, while the broader stock market’s prices relative to earnings are at their highest levels during this
period. We believe this represents a compelling opportunity for REIT investors.
Discount
Premium
Exhibit 1: U.S. REIT Sector Premium/Discount to Net Asset Value(a)
70%
60%
50%
40%
30%
20%
10%
0%
-10%
Four-Year Historical Range(b)
Current(c)
23.9
8.1
2.0
Apartment
Health Care
8.9
2.0
Hotel
12.3
5.5
-0.2
Industrial
Office
Regional
Mall
Self Storage
Shopping
Center
9.8
U.S. Total(d)
Many U.S. REITs
can currently be
purchased at prices
that are close to
or below their
underlying asset
values compared
with the higher
premiums typically
seen in the past
four years.
At February 28, 2015. Source: Cohen & Steers estimates based on proprietary qualitative and quantitative metrics. Only major REIT sectors are shown
individually.
Performance data quoted represents past performance. Past performance is no guarantee of future results.
Exhibit 2: U.S. REIT Sector Price-to-Funds from Operations(e)
Four-Year Historical Range(b)
Current(c)
30x
25x
20x
20.6
16.5
15x
19.6
19.6
19.6
18.6
19.6
14.3
13.4
10x
20.6
5x
Apartment
Health Care
Hotel
Industrial
Office
Regional
Mall
Self Storage
Shopping
Center
Many U.S. REITs
are priced at the
middle-end of the
four-year range
versus earnings...
broad stocks,
represented by the
S&P 500,
are priced at
historical highs.
U.S. REIT
S&P 500
Total(d) (price-to-earnings)(f)
At February 28, 2015. Source: Cohen & Steers estimates based on proprietary qualitative and quantitative metrics. Only major REIT sectors are shown
individually.
Performance data quoted represents past performance. Past performance is no guarantee of future results.
The information presented above does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will
experience the type of performance reflected above. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely
when such a trend might begin.
(a) NAV (Net Asset Value) seeks to calculate the net market value of all of a company’s assets after subtracting liabilities. (b) (FFO) Funds from operations is the REIT industry’s key
earnings metric. It is calculated as GAAP net income, plus real estate gains (minus real estate losses), plus GAAP real estate depreciation and amortization. (c) The 4-Year Historical
Range begins on 3/31/11 and ends on 2/28/15. The range was calculated using Cohen & Steers’ valuation metrics and is based on the FTSE NAREIT Equity REIT Index at the end of
each month. (d) Current numbers were calculated using Cohen & Steers’ valuation metrics and are based on securities that are in Cohen & Steers’ coverage universe which represents a
98% overlap with securities included in the FTSE NAREIT Equity REIT Index. Certain companies in sectors, such as infrastructure, are covered by Cohen & Steers but are not in the FTSE
NAREIT Equity REIT Index. The FTSE NAREIT Equity REIT Index is an unmanaged, market-capitalization-weighted index of all publicly traded U.S. REITs that invest predominantly in
the equity ownership of real estate, not including timber and infrastructure. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees,
expenses or taxes. (e) U.S. Total represents the weighted average of all REIT sectors. (f) Price-to Earnings is a valuation ratio of a company’s current share price compared to its pershare earnings. It is calculated by dividing the current market value per share by the latest earnings per share. The S&P 500 price-to-book and price-to-earnings ratios 4-Year Historical
range begins on 3/31/11 and ends on 2/28/15. The range as well as the current multiple was calculated by FactSet and represents the weighted average of all S&P 500 Index sectors.
The S&P 500 Index is an unmanaged index of 500 large-capitalization, publicly traded U.S. stocks representing a variety of industries.
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Market Pulse March 2015
The Added Value of Active Portfolio Management
We believe that investing in U.S. REITs with an experienced active manager offers
several important advantages over passively managed investments such as
exchange-traded funds (ETFs). Here are a few reasons why:
Different REITs are better suited for different phases of an economic cycle. Certain types of REITs
tend to be more cyclical, while others have more “bond-like” cash flows. This depends largely on the
duration of their leases, which can range from a single day (hotels) to a decade or more (hospitals). An
active manager can adjust a portfolio’s allocation depending on their economic outlook in an effort to
enhance absolute returns over full market cycles.
Flexibility among market capitalizations. ETFs are typically weighted by market cap, meaning that
large-cap REITs will dominate the portfolio’s holdings. By contrast, an active manager can increase
allocations to select small-cap REITs that may offer greater growth potential.
Finding opportunities through fundamental company analysis. An active manager may conduct
extensive research of each company, evaluating its management team, its acquisition and development
strategy, the quality of its properties, and the strength of its balance sheet, using these inputs to assess
the stock’s value relative to its peers.
Cohen & Steers’ actively managed U.S. REIT solutions
Open-End Mutual Funds
Cohen & Steers Realty Shares
CSRSX—no load
Cohen & Steers Real Estate Securities Fund
CSEIX—Class A
CSCIX—Class C
CSDIX—Class I
CIRRX—Class R
CSZIX—Class Z
Cohen & Steers Institutional Realty Shares
CSRIX—Institutional
Cohen & Steers open-end funds are distributed by Cohen & Steers Securities, LLC.
Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers fund carefully before investing. A summary prospectus and
prospectus containing this and other information may be obtained by visiting cohenandsteers.com or by calling 800 330 7348. Please read the summary
prospectus and prospectus carefully before investing. The mention of specific securities is not a recommendation or solicitation for any person to buy, hold or
sell a particular security and should not be relied upon as investment advice.
The views and opinions are as of the date of this publication and are subject to change without notice.
Important Disclosures
The views and opinions in the preceding commentary are as of the date of publication and are subject to change without notice. There is no guarantee
that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no
guarantee that any market forecast made in this commentary will be realized. This material represents an assessment of the market environment at a
specific point in time, should not be relied upon as investment or tax advice and is not intended to predict or depict performance of any investment. We
consider the information in this commentary to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of
suitability for investment. Investors should consult their own advisors with respect to their individual circumstances.
This commentary must be accompanied by the most recent Cohen & Steers Realty Shares, Cohen & Steers Real Estate Securities Fund, or Cohen & Steers
Institutional Realty Shares factsheet if used in conjunction with the sale of mutual fund shares.
Risks of Investing in Real Estate Securities
Risks of investing in real estate securities are similar to those associated with direct investments in real estate, including falling property values due to
increasing vacancies or declining rents resulting from economic, legal, political or technological developments, lack of liquidity, limited diversification and
sensitivity to certain economic factors such as interest rate changes and market recessions. Foreign securities involve special risks, including currency
fluctuations, lower liquidity, political and economic uncertainties, and differences in accounting standards. Some international securities may represent
small- and medium-sized companies, which may be more susceptible to price volatility and be less liquid than larger companies.
Cohen & Steers Capital Management, Inc. (Cohen & Steers) is a registered investment advisory firm that provides investment management services to
corporate retirement, public and union retirement plans, endowments, foundations and mutual funds.
Copyright © 2015 Cohen & Steers, Inc. All rights reserved.
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