By Christine Idzelis
U.S. real estate investment trusts may be a relatively roomy place to hunt for buying opportunities, but some REITs are more crowded bets than others, research from a Citigroup unit shows.
The REIT sector remains one of the least “crowded,” ranking 18 out of 24 industries examined, Citi analysts said in a research note dated April 21. But they broke out the most popular names in the sector and pointed to property level shifts that investors might want to consider in picking their spots.
A “crowded trade” is usually one where the deployment of a large amount of capital to purchase or sell an asset or a group of assets with similar characteristics can result in a significant change in the price of the assets.
“This has included modestly increased crowding levels in apartments and shopping centers and modestly lower levels in office, data centers, and malls ,” the analysts said in the report. “Single family, industrial, and specialty REITs remain the most ‘crowded’ as of April 15.”
According to the Citi Research note, quantitative investors have been worried about the “crowding” of systematic strategies in equities markets since the global financial crisis of 2008. That is, “whether everyone is looking at the same factors and investing in the same stocks ,” the analysts explained.
Gaming & Leisure Properties Inc. /zigman2/quotes/202974631/composite GLPI +0.35% , VICI Properties Inc. /zigman2/quotes/208764441/composite VICI -1.25% — which holds gaming, hospitality and entertainment real estate interests— and urban office REIT Alexandria Real Estate Equities Inc. /zigman2/quotes/206543290/composite ARE +0.45% (ARE) stand out for being the most crowded bets, according to the report.
As for the least crowded REITs, Paramount Group Inc. /zigman2/quotes/203270150/composite PGRE +0.86% , which focuses on central business districts in New York, San Francisco and Washington, topped Citi’s list. Urban office REIT Empire State Realty Trust Inc. /zigman2/quotes/204686725/composite ESRT +1.05% and diversified REIT Alexander’s Inc. /zigman2/quotes/206189603/composite ALX -0.59% (ALX) are also among the least crowded, the report shows.
Citi measured REIT crowding based on percentile ranks, which considered relative valuations, short interest, sell-side ratings, the “growth” quant factor, and macro exposure. The analysts noted in the report that during the pandemic the “quant crowding factor” shifted in August to growth from low volatility.
“Given the change, REITs were significantly impacted and sit as the seventh least crowded industry group,” the analysts said. “We attribute this to the lower relative growth of the REIT industry and its lower beta positioning.”