investing

A REIT Fund Checks Out of Hotels

Real estate stocks are sizzling. But TIAA-CREF Real Estate Securities is playing defense.

Real estate investment trusts are in a sweet spot. The Federal Reserve cut short-term interest rates over the summer and hinted that more cuts were to come. That helps real estate companies that benefit from lower borrowing costs. Lower rates also make dividend yields on REITs more attractive. And although rates are headed lower because of worries about the economy, for now at least, the economy is still growing—and REITs are thriving. Since the start of 2019, the average real estate fund has gained 22.3%. By contrast, Standard & Poor’s 500-stock index is up 17.8%.

Still, at TIAA-CREF Real Estate Securities (symbol TIRHX), managers David Copp and Brendan Lee are getting defensive. “We’re in the longest economic expansion in history, but it’s going to end, and we keep that in mind,” says Copp. He and Lee are loading up on REITs that tend to hold up better in bad times, such as warehouses, manufactured housing and wireless cell-phone towers. They’re avoiding those that may be vulnerable in a recession, such as hotels.

How Today's Bull Market Stacks up image

K10I-FUNDTRENDS_RANKINGS.a.indd

Getty Images

Copp’s favorite warehouse REIT these days is Rexford Industrial Realty, which owns more than 175 properties in Southern California. At the end of 2018, its biggest tenants included FedEx and Tesla. Rexford is benefiting from growing demand for its facilities in an area of limited warehouse supply. Over the past 12 months, the stock has climbed 35.7%.

Most stocks are measured by their earnings potential; REITs are measured by the cash flow generated from operations, known as funds from operations, or FFO. Copp and Lee favor firms with above-average cash-flow growth. They also look for REITs with below-average capital expenditures (money spent to acquire or maintain property or land). Generally, a warehouse has lower capital expenses than a hotel, says Copp.

The fund managers usually hold a REIT for three years, compared with the one-year period typical of the average real estate fund. Most fund managers talk about having a long-term view, says Copp, but some focus more on the short term than they admit.

Over the past decade, the fund has beaten 84% of its peers on an annualized basis, with a 13.6% return. Fees are below average, too, at 0.81%.

Most Popular

Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How
social security

Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How

It’s always smart to maximize your Social Security benefits, and if you are divorced, one way to do that might be to take them based on your ex’s earn…
May 13, 2021
Refunds for $10,200 Unemployment Tax Break to Begin This Week
Coronavirus and Your Money

Refunds for $10,200 Unemployment Tax Break to Begin This Week

The IRS will start issuing automatic refunds in mid-May to people eligible for the unemployment benefit tax exemption.
May 14, 2021
18 Worst Things to Buy at Dollar Stores
spending

18 Worst Things to Buy at Dollar Stores

These discount retailers stock plenty of bargains, but some of the merchandise isn’t worth the buck.
May 14, 2021

Recommended

American Century Small Cap Value (ASVIX) Joins Kip 25
Kip 25

American Century Small Cap Value (ASVIX) Joins Kip 25

American Century's small-cap-focused ASVIX consistently delivers high returns with average risk, and bears little resemblance to its benchmark.
April 30, 2021
The Disturbing Conflicts of Interest in Target Date Funds
mutual funds

The Disturbing Conflicts of Interest in Target Date Funds

Are you one of the 40 million folks who has a target date fund in your 401(k)? It could be costing you 21% in returns over the course of your career, …
April 30, 2021
The Kip 25: The Best Low-Fee Mutual Funds
mutual funds

The Kip 25: The Best Low-Fee Mutual Funds

The key to building wealth long-term is buying high-quality, low-cost mutual funds run by seasoned stock pickers. Here are our favorites: The Kiplinge…
April 29, 2021
35 Ways to Earn Up to 10% on Your Money
Investing for Income

35 Ways to Earn Up to 10% on Your Money

Yields are beginning to lift off. We found great deals for every level of risk.
April 29, 2021