CRE Stocks: The Fundamental Things Still Apply

Morningstar headquarters in Chicago

CHICAGO—Strong underlying performance helps to offset what Morningstar views as the “generally defensive” nature of commercial real estate themes, especially on a global scale. Publicly traded real estate companies within Morningstar’s sphere of coverage are “marginally undervalued,” trading at a 7% discount to fair value estimates.

In its outlook report on real estate stocks, issued Thursday, Morningstar cites “lingering concerns about increasing bond yields pressuring property stocks globally by double-digit percentages.” That being the case, analyst Edward Mui notes that “we continue to focus on underlying performance, which has remained healthy overall, as REITs have been focused on repositioning and strengthening their portfolios, deleveraging, and capital recycling. Construction of new property continues, however, as firms look for higher returns, putting into question levels of new supply as economic uncertainty remains.”