With the S&P 500 up 6.13% for the month ending June 9, some market participants may think the worst of the pain inflicted by the White House’s tariff policy is in the rearview mirror. That can change on a dime. But assuming trade issues stay out of the headlines, some sectors could accrue gains in a more sanguine macroeconomic environment. Some analysts view real estate, including REITS, as one of those sectors.
That indicates there could be upside available with ETFs such as the ALPS Active REIT ETF (REIT ). The actively managed REIT has perked up as of late. But it resided 11% below its 52-week high as of June 9. That implies there’s runway for more upside if the macro climate proves hospitable.
While real estate investment trusts (REITs), including those residing in the ALPS ETF, are usually domestically focused entities, their dependence on the U.S. as the primary source of revenue and adjusted funds from operations (AFFO) underscores why the group is vulnerable to tariff issues. If trade tariffs pinch the U.S. economy, real estate stocks would likely suffer. Fortunately, that scenario appears to be avoidable.
REIT Outlook Improving
Following Nareit’s REITweek conference last week, it appears many REIT executives are cautiously optimistic on their companies’ near- to medium-term outlooks.
“As we get to a more stable environment, and we start seeing transactions picking up in commercial real estate broadly, REITs are very likely to be acquirers, as valuations in the private market get to more realistic levels," said John Worth, Nareit’s executive vice president of Research and Investor Outreach, in an interview with Seeking Alpha. “That’s because of REITs’ strong balance sheet and access to the capital markets.”
Speaking of tending to balance sheets, some REIT member firms have overtly said that’s a top priority, because they want to grow dividends and enjoy favorable terms when accessing capital markets.
Regarding access to capital, that’s a primary issue for REITs, and one that came to the forefront when tariffs made daily headlines. Throw in what’s still a mostly uncooperative interest rate environment, and it’s understandable that some real estate executives are leery of raising cash. On the other hand, if some positivity emerges on those fronts, ETFs such as REIT could generate solid returns.
“We’ve really been living through a dampened, or low transaction volume period for two-plus years," Worth told Seeking Alpha. "Those floodgates have yet to open, in part because of some of the market volatility that we’ve seen this year.”
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