Small-Cap REIT Names With Big Potential

Brad Thomas

467 postsAugust 31, 2020

Publicly traded small-cap companies of any kind – real estate investment trust or otherwise – might not seem like your cup of tea at the moment.

If that’s the case, it’s understandable. More than understandable, in fact, considering how this year has gone.

January and February were the months investors felt confident betting on the little guys. That’s when 2020 was shiny and new still, with hopes and dreams galore to be had.

That’s when the markets kept going up and up and away, more speculative stocks like small-caps and all.

That was right before everything crashed and burned… sending investors into the same state of fear and anxiety they had after the financial crash 12 years before.

Also as with the financial crash, everything seems so uncertain as we continue to trudge forward from this latest crisis’ nauseating lows. Will there be another crash? Can the economy pull through even if there isn’t?

If there was ever a time to play it safe, the waning days of 2020 would be it, many argue.

And, to be honest, I couldn’t agree more.

You Rarely Want to Get Cute, but Small-Caps Aren’t Always Risky

If I’ve said it once, I’ve said it a hundred times: Now is not the time to get cute, playing around with forces you can’t comprehend.

Then again, that’s my usual motto, economic rain or shine, bear markets or bull markets alike. While I will let readers know when certain speculative stocks are looking particularly promising, I’m extremely upfront about their risks.

Having gone through my own hard-knocks life experiences during the financial crisis, I’d prefer to avoid similar experiences. And the more people I can share that preventative advice with, the happier I’ll be.

But that doesn’t automatically exclude small-cap stocks, even in times like these.

As I wrote on February 24 – when all the craziness was only beginning – in a Forbes article titled “A Small-Cap REIT Poised to Profit”:

“… Viraj Desai, senior manager of portfolio construction at TD Ameritrade, has said that, ‘it’s generally harder for a $100 billion company to double in size than it is for a $1 billion company to do the same.’

“As such, it’s generally easier to double or triple your investment in a small-cap than in a large-cap.

“If all things are even when it comes to quality and favorable market conditions.

“Which isn’t always the case.

“That’s why small-caps – defined as companies that have a market capitalized between $300 million and $2 billion – also tend to offer more risk than their bigger brethren. They may be able to rise much more quickly; but they can fall just as fast, if not faster…

“It’s a good point. But so is the fact that most well-balanced and, ultimately, most profitable portfolios consist of both large caps and small caps.

“The solution is to buy up high-quality examples all around.”

And there are, indeed high-quality examples out there, including in REITs.

They’re Never Going to Get That Big, but They’re Still Big Enough

I’m not going to say that quality small-cap examples can better be found in the REIT universe. But I will point out that these companies are bound to be smaller than, say, your “average” big tech stock.

For example, When 2020 began, here were the largest REITs by market capitalization according to The Motley Fool:

· Telecommunications giant American Tower (AMT) – $102.3 billion

· Telecommunications “second-placer” Crown Castle International – $58.9 billion

· Industrial owner Prologis (PLD) – $56.6 billion

· Data center landlord Equinix (EQIX) – $50.7 billion

· Mall maven Simon Property Group – $44.4 billion.

Meanwhile, here’s the market caps for the largest tech around the same time, this one according to Business Insider:

· Apple (AAPL), at 1.38 trillion

· Microsoft (MSFT), at $1.27 trillion

· Alphabet (GOOG), at $1 trillion

· Amazon (AMZN), at $931 billion

· Facebook (FB), at $632 billion.

Obviously, those facts and figures have shifted since January. But the point still stands: REITs aren’t built to become enormous. They’re not designed to take on the same kind of risks. So they don’t play in the same kind of pool with the same kind of sharks.

Which means that, statistically speaking, you probably have a better chance investing in a safe and sturdy small-cap REIT. And while I can’t argue that there’s no risk involved – you’re never going to hear me say that about any investment since it’s simply never true – I do find these growth opportunities strong enough to stand even my “don’t get cute” motto.

Small-Cap REITs Right at Your Fingertips

We recently upgraded shares in Plymouth REIT (PLYM) to a Buy based upon the company’s cheap valuation (lowest multiple in the Industrial REIT sector) and sustainable dividend (after the company cut it during COVID-19).

Shares now yield 6.0 percent with growth forecasted at 3 percent in 2020. We like the growth prospects in which the company has a steady pipeline of acquisitions to source within the highly fragmented industrial universe.

We also like City Office REIT (CIO) and we recently upgraded the company to a BUY based upon the enhanced demand for leasing office space in secondary markets.

Due to the effects of COVID-19, many companies are scouting for office space away from the major gateway markets, and City Office provides that service as the company owns properties in Dallas, Denver, Orlando, Phoenix, San Diego, and Tampa.

We also like the valuation as shares are now trading at 50% below their normal P/FFO range with a dividend yield of 7.5 percent.

This article was originally published on Forbes.com.

*Disclosure:

I am/we are Long PLYM, CIO

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Happy Investing

Brad Thomas

467 posts

View all my Posts

Brad Thomas is Senior Research Analyst at iREIT and CEO of Wide Moat Research LLC. With over 30 years of real estate experience, he is also long-time Editor of Forbes Real Estate Investor, a monthly subscription-based newsletter that dives deep into the vast world of profitable properties, and since 2021, he has served as an adjunct professor at New York University.

Thomas has also been featured on or in Forbes magazine, Kiplinger's, U.S. News and World Report, Money, NPR, Institutional Investor, GlobeStreet, CNN, Newsmax, and Fox. And he was the #1 contributing analyst on Seeking Alpha in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021 based on both page views and number of followers.

Thomas is the recently-published author of The Intelligent REIT Investor Guide (2021), co-author of The Intelligent REIT Investor (2016), and he wrote The Trump Factor: Unlocking The Secrets Behind The Trump Empire (2016) - all available on Amazon.

Thomas received a bachelor of science in business/economics from Presbyterian College and is married with five wonderful kids.

Pandemic-Proof Performance: Own REIT Preferreds

REIT Mutual Fund	Symbol
Alpine Realty Income and Growth Fund	AIGYX, AIAGX
American Century Real Estate Fund	REAIX, REACX, AREEX, AREWX, ARYCX, AREDX
Real Estate Securities Fund	MRESX
AR Capital Real Estate Income Fund	ARIAX, ARICX, ARIPX
AssetMark Real Estate Securities Fund	AFREX
Aston/Harrison Street Real Estate Fund	AARIX, ARFCX
Baron Real Estate Fund	BREIX, BREFX
BlackRock Real Estate Securities	BIREX, BAREX, BCREX
Brookfield U.S. Listed Real Estate Fund	BRUAX, BRUCX, BRUIX, BRUYX
CGM Realty Fund	CGMRX
West Loop Realty Fund	REIIX, REIAX, REICX
Cohen & Steers Institutional Realty Shares	CSRIX
Cohen & Steers Realty Income Fund	CSEIX, CSDIX, CSBIX, CSCIX
Cohen & Steers Realty Shares	CSRSX
Columbia Real Estate Equity Fund	CREAX, CREIX, CRRVX, CRERX, CREEX, CRRFX, CREWX, CRECX, CREBX
Compass EMP REC Enhanced Volatility Weighted Fund	CWRAX, CWRIX, CWRTX, CWRCX
Davis Real Estate Fund	RPFRX, DREYX, DRECX, DREBX
Delaware Real Estate Investment Trust Portfolio II	DPRTX, DPRBX
Delaware Real Estate Investment Trust Portfolio	DPREX, DPRSX, DPRRX, DPRCX
DFA Real Estate Securities Portfolio	DFREX
Dunham Real Estate Stock Fund	DAREX, DNREX, DCREX
DWS RREEF Real Estate Securities Fund	RRRRX, RRREX, RRRAX, RRRSX, RRRBX, RRRCX
DWS RREEF Real Estate Securities Income Fund	REFAX, REFCX, REFIX, REFSX
Eaton Vance Real Estate Fund	EAREX, EIREX
EII Realty Securities Fund	EIIRX
Fidelity Advisor Real Estate Fund	FHEIX, FHEAX, FHETX, FHECX, FHEBX
Fidelity Advisor Real Estate Income Fund	FRIRX, FRIQX, FRINX, FRIOX
Fidelity Real Estate Income Fund	FRIFX
Fidelity Real Estate Investment Portfolio	FRESX
Fidelity Spartan Real Estate Index Fund	FSRNX, FRXIX, FSRVX
Fidelity Series Real Estate Equity Fund	FREDX, FREFX
Fidelity Series Real Estate Income Fund	FSREX, FSRWX
Forward Real Estate Long/Short Fund	KSRYX, FRLSX, FFSRX, KSRAX, KSRCX, KSRBX
Forward Real Estate Fund	FPREX, FFREX, KREAX, KRECX
Forward Select Income Fund	KIFYX, FSIMX, FFSLX, KIFAX, KIFBX, KIFCX
Franklin Real Estate Securities Fund	FREEX, FRLAX, FRRSX, FSERX
GMO Real Estate Fund	GMORX
Goldman Sachs Real Estate Securities Fund	GREIX, GRETX, GREAX, GRESX, GRERX, GREBX, GRECX
Great-West Real Estate Fund	MXREX
Heitman REIT Fund	OARTX, OBRTX
ING Real Estate Fund	CRARX, IREWX, IDROX, CLARX, CRWRX, CRCRX, CRBCX
INVESCO Real Estate Fund	REINX, IARFX, IARIX, IARYX, IARAX, IARRX, IARCX, AARBX
Ivy Real Estate Securities Fund	IRSAX, IREIX, IRSYX, IRSRX, IREEX, IRSCX, IRSBX
John Hancock Real Estate Securities Fund	JIREX
Johnson Realty Fund	JRLTX
J.P.Morgan Realty Income Fund	URTLX, JRIRX, URTAX, URTBX, URTCX
J.P. Morgan Security Capital U.S. Core Real Estate Securities Fund	CEEAX, CEERX, CEEFX, CEESX, CEECX
J.P. Morgan U.S. Real Estate Fund	SUSIX
Lazard U.S. Realty Equity Portfolio	LREIX, LREOX
Lazard U.S. Realty Income Portfolio	LRIIX, LRIOX
Manning & Napier Real Estate Series	MNRIX, MNREX
Morgan Stanley Institutional U.S. Real Estate Portfolio	MSUSX, MUSDX, MSULX, MURSX
Natixis AEW Real Estate Fund	NRFAX, NRFYX, NRFBX, NRFCX, NRFNX
Neuberger Berman Real Estate Fund	NBRIX, NBRFX, NREAX, NRERX, NRECX, NRREX
Nuveen Real Estate Securities Fund	FREAX, FARCX, FRSSX, FREBX, FRLCX, FREGX
Oppenheimer Real Estate Fund	OREAX, OREIX, OREYX, ORENX, OREBX, ORECX
PHOCAS Real Estate Fund	PHREX
PIMCO RealEstateRealReturn Strategy Fund	PRRSX, PETPX, PETAX, PETDX, PETCX, PETBX
Pioneer Real Estate Shares	PWREX, PYREX, PCREX, PBREX
Principal Real Estate Securities Fund	PIREX, PIRPX, PREPX, PRETX, PREJX, PRRAX, PRERX, PRENX, PRAEX, PRCEX, PRLEX
ProFunds Real Estate UltraSector ProFund	REPIX
Prudential Select Real Estate Fund	SREAX
Prudential U.S. Real Estate Fund	PJEAX, PJEZX, PJECX, PJEBX
REMS Real Estate Income 50/50 Portfolio	RREIX
REMS Real Estate Value-Opportunity Fund	HLRRX, HLPPX
Rydex Real Estate Fund	RYREX, RYHRX, RYCRX
SA Real Estate Securities Fund	SAREX
SEI Institutional Mgd Real Estate Fund	SETAX, SEIRX
Spirit of America Real Estate Income & Growth Fund	SOAAX
SSgA Clarion Real Estate Fund	SSREX
Stratton Real Estate Fund	STMDX
T.Rowe Price Real Estate Fund	TRREX, PAREX
TIAA-CREF Real Estate Securities Fund	TIREX, TRRPX, TRRSX, TCREX
Vanguard REIT Index Fund	VGSNX, VGRSX, VGSLX, VGSIX
Virtus Real Estate Securities Fund	PHRAX, PHRIX, PHRCX, PHRBX

REIT ETF	Symbol
Flex Shares	ASET
Wisdom Tree Global Ex-US	DRW
S&P 500 Equal Weight	EWRE
iShares FTSE Industrial/Office	FNIO
MSCI Real Estate Index	FREL
S&P REIT Index	FRI
First Trust S&P REIT	FRI
iShares Real Estate 50	FTY
Flexshares Global	GQRE
iShares Cohen & Streers	ICF
iShares International Developed RE	IFGL
iShares US RE	IYR
Premium Yield Equity REIT	KBWY
ETRACS Monthly Pay 2x Leverage	MORL
Market Vector Mortgage	MORT
iShares Global REIT	REET
iShares FTSE Mortgage	REM
iShares Residential	REZ
IQ US Real Estate Small Cap	ROOF
iShares FTSE NAREIT Retail	RTL
DOW Jones Global RE	RWO
SPDR Dow Jones	RWR
Schwab US REIT	SCHH
Super Dividend REIT	SRET
ProShares Ultra RE	URE
Vanguard REIT	VNQ
Vanguard Global ex-US	VNQI
iShares International Developed	WPS
Wilshire US REIT	WREI
Pacer Benchmark Data & Infrastructure RE	SRVR
Pacer Benchmark Industrial RE	INDS
Pacer Benchmark Retail RE	RTL
Hoya Capital Housing	HOMZ
NetLease Corporate RE	NETL

REIT Name	Ticker	Annual Increases/yr
Federal Realty	FRT	51
Universal Health Realty	UHT	33
National Retail Properties	NNN	29
Realty Income	O	27
Tanger Outlets	SKT	26
Urstadt Biddle	UBA	25
Essex Property Trust	ESS	25
W.P.Carey	WPC	22
National Health Investors	NHI	17
Equity Lifestyle	ELS	15
Digital Realty	DLR	15

Small-Cap REIT Names With Big Potential

Brad Thomas

467 postsAugust 31, 2020

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Small-Cap REIT Names With Big Potential

467 postsAugust 31, 2020

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