--- title: Residential REITs in a Bear Market description: REITs have historically served as a strong inflation hedge and have direct exposure to primary drivers of the U.S. economy image: https://blog.armadaetfs.com/hubfs/Concept%20of%20anti%20crisis%20with%20businessman%20that%20tames%20statistics%20diagram.jpeg --- [![armada-etf-advisors-1_web](https://blog.armadaetfs.com/hs-fs/hubfs/armada-etf-advisors-1_web.png?width=200&height=43&name=armada-etf-advisors-1_web.png)](https://www.armadaetfs.com/) - [HOME](https://www.armadaetfs.com/) - [HAUS](https://www.armadaetfs.com/haus) - [INSIGHTS](https://blog.armadaetfs.com) - [VIDEOS](https://www.armadaetfs.com/videos/) - [TEAM](https://www.armadaetfs.com/team/) - [CONTACT](https://www.armadaetfs.com/contact) Residential REITs # Residential REITs in a Bear Market REITs have historically served as a strong inflation hedge and have direct exposure to primary drivers of the U.S. economy [Al Otero](https://blog.armadaetfs.com/author/al-otero) Jun 29, 2022 --- ![Concept of anti crisis with businessman that tames statistics diagram-1](https://blog.armadaetfs.com/hs-fs/hubfs/Concept%20of%20anti%20crisis%20with%20businessman%20that%20tames%20statistics%20diagram-1.jpeg?width=1000&name=Concept%20of%20anti%20crisis%20with%20businessman%20that%20tames%20statistics%20diagram-1.jpeg) ### **Apartment REITs Prosper Amidst Economic Downturn** - REITs have historically served as a strong inflation hedge and have direct exposure to primary drivers of the U.S. economy - Apartment REIT total shareholder return (TSR) has outperformed that of other REITs and the broader market by a wide margin over the past 20 years (5% NAREIT Equity Apartment Index CAGR vs. 11.4% NAREIT Equity Index CAGR vs. 7.7% S&P 500 CAGR) - Apartment REIT outperformance has been driven by 1) an ongoing shortage of U.S. housing, 2) better long-term net operating income (NOI) growth and lower capital expenditure costs than other REIT sectors, 3) the sectors status as a necessary, non-discretionary expense, and 4) a higher propensity to rent from Millennials and Baby Boomers, the two largest U.S. cohorts\[1\] ### **Recent Bear Market Has Led Towards Indiscriminate Selling** We are confident in the above commentary which came from the investor presentation of one of our constituent companies at this past week’s NAREIT conference, and would also highlight that during periods of financial market dislocation such as we are currently seeing across risk assets, there tends to be a high ‘correlation to the downside’ until we achieve some level of market capitulation. Having reached official bear market territory (down 20%) across many of the major stock market indexes over the past few days, indiscriminate selling has resulted with little or no regard for fundamentals. ### **Residential REITs During High Inflation Period** While not immune from a 40-year high in inflation which was recently set, nor from the potential for recession which seems to be top of mind for many forecasters, residential REITs have entered this current economic environment in an extremely strong position. This group will benefit from the supply/demand imbalance in housing which has been growing over the past ten years, causing occupancy rates to remain high along with operating margins and rental rates. Even under a scenario where the economy dips into recession in 2023 or beyond, residential real estate should still perform extremely well on both an absolute and relative basis. Also, with consumer confidence waning as concerns over the economy linger, some REIT investors may be hesitant to maintain exposure to the entire universe of property sectors including malls/retail REITs (non-essential), office (continued hybrid work models) and hotels (discretionary spending). These more risk averse investors could take a tactical approach of consolidating their REIT holdings into a sector like residential which has more attractive characteristics in a challenging macro environment. ### **Entry Point Opportunity For Sizeable Portfolios** Residential REITs are well positions to undertake shareholder friendly initiatives such as raising their common stock dividends and buying back common stock at material discounts to the underlying values of their portfolios. These activities may not garner much investor attention while in the midst of an indiscriminate market correction, but such activities can be beneficial to those able to look beyond the current melee. Also, spiking interest rates or the threat of recession may not be ideal for M&A (merger and acquisition) activity, but with residential being one of the most sought-after and liquid sectors within the real estate realm, substantial discounts to private market value and replacement cost could be viewed opportunistically by private capital as an entry point to acquire sizeable portfolios. ### **Stay The Course** We would encourage our holders to “stay the course” and potentially add to the residential REIT sector given the recent dislocation in stock prices as markets will eventually settle and investors will once again focus on demographics, fundamentals and valuation. All of which bode well for our constituents. Footnotes: \[1\]UDR Inc. - Investor Presentation; June 2022 **Glossary:** **NAREIT Equity Index:** The FTSE Nareit Equity REITs Index contains all Equity REITs not classified as Timber REITs or Infrastructure REITs. **NAREIT Equity Apartment Index:** A free float adjusted market capitalization weighted index that incorporates all tax qualified REITs listed in the NYSE, AMEX, and NASDAQ National Market **CAGR:** Compound Annual Growth Rate *Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call (800) 693-8288 or visit our website at www.armadaetfs.com. Read the prospectus or summary prospectus carefully before investing.* *Investments involve risk. Principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. Brokerage commissions may apply and would reduce returns. The fund is new and has limited operating history to judge.* *Distributed by Foreside Fund Services, LLC.* [Residential REITs](https://blog.armadaetfs.com/tag/residential-reits) ## Similar posts REIT ### [Single-Family Rental Sector: A Young Industry with Room to Grow](https://blog.armadaetfs.com/single-family-rental-sector-a-young-industry-with-room-to-grow) The single-family rental (SFR) sub-sector of the rental housing market is the latest in a long series of property types which have transitioned from... Armada Aug 22, 2023 REIT ### [Manufactured Housing: A Stormy End to the Quarter But Outlook Is Bright](https://blog.armadaetfs.com/manufactured-housing-a-stormy-end-to-the-quarter-but-outlook-is-bright) Two large manufactured housing REITs, Equity Lifestyle Properties (ELS) and Sun Communities (SUI) have reported 3Q 2022 earnings over the past week. Al Otero Nov 4, 2022 Single Family Rental ### [Single-Family-Rentals: Operating Expenses are up, but Business Still Performing](https://blog.armadaetfs.com/single-family-rentals-operating-expenses-are-up-but-business-still-performing) Higher operating expenses impacted the SFR industry in similar ways as the line item affected the broader rental housing sub-sectors. Al Otero Dec 13, 2022 ### Sign Up For Armada ETF Email Updates, Delivered Straight To Your Inbox. [![armada-etf-advisors-1_web](https://blog.armadaetfs.com/hubfs/armada-etf-advisors-1_web.png)](https://www.armadaetfs.com) © ARMADA ETF ADVISORS ALL RIGHTS RESERVED. ### Contact Us - [contact@armadaetfs.com](mailto:contact@armadaetfs.com) - [(800) 693-8288](tel:8006938288) ***Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call [(800) 693-8288](tel:8006938288) or visit our website at **[www.armadaetfs.com](http://www.armadaetfs.com/)**. Read the **[prospectus](https://www.armadaetfs.com/haus/prospectus)** or **[summary prospectus](https://www.armadaetfs.com/haus/summary-prospectus)** carefully before investing.*** Investments involve risk. Principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. Brokerage commissions may apply and would reduce returns. The fund is new and has limited operating history to judge. **Risks of Investing in the Funds:** The Funds are classified as non-diversified investment companies. The Funds may invest a greater portion of assets in the securities of a single issuer or a smaller number of issuers than if they were diversified funds. To the extent that either Fund invests in other funds, a shareholder will bear two layers of asset-based expenses, which could reduce returns compared to a direct investment in the underlying funds. Through investments in REITs, the Funds are subject to the risks of investing in the real estate market, including decreases in property revenues, increases in interest rates, increases in property taxes and operating expenses, legal and regulatory changes, a lack of credit or capital, defaults by borrowers or tenants, environmental problems, and natural disasters. The Fund smay invest in derivatives, which are often more volatile than other investments and may magnify the Funds’ gains or losses. The HAUS Fund may invest in debt securities which are subject to the risks of an issuer’s inability to meet its obligations under the security; failure of an issuer or borrower to pay principal and interest when due; and interest rate changes affect the prices of fixed income securities. In addition, an increase in prevailing interest rates typically causes the value of existing fixed income securities to fall and often has a greater impact on longer duration and/or higher quality fixed income securities. The PRVT Fund invests in mortgage-backed securities (MBS), which are subject to the risks generally associated with fixed-income securities and mortgage-backed securities. Delinquencies and defaults by borrowers in payments on the underlying mortgages, and the related losses, are affected by general economic conditions, the borrower's equity in the mortgaged property, and the borrower's financial circumstances. In addition, an increase in prevailing interest rates typically causes the value of existing fixed income securities to fall and often has a greater impact on longer duration and/or higher quality fixed income securities. Unlike typical exchange-traded funds, there are no indexes that the Funds attempt to track or replicate. Thus, the ability of the Funds to achieve their respective objective will depend on the effectiveness of the portfolio manager. In general, ETFs can be tax efficient. ETFs are subject to capital gains tax and taxation of dividend income. However, ETFs are structured in such a manner that taxes are generally minimized for the holder of the ETF. An ETF manager accommodates investment inflows and outflows by creating or redeeming “creation units,” which are baskets of assets. As a result, the investor usually is not exposed to capital gains on any individual security in the underlying portfolio. However, capital gains tax may be incurred by the investor after the ETF is sold. The Fund is recently organized, giving prospective investors a limited track record on which to base their investment decision. Investment Objective: The Home Appreciation U.S. REIT ETF (HAUS) seeks total return. For current holdings and performance click [here](https://www.armadaetfs.com/haus/). Investment Objective: The Private Real Estate Strategy via Liquid REITs ETF (PRVT) seeks total return. For current holdings and performance click [here](http://www.armadaetfs.com/prvt/). Distributed by Foreside Fund Services, LLC. Foreside is not affiliated with Armada ETF Advisors, Tidal ETF Services or Thryve Communications. Launch & Structure Partner: Tidal ETF Services. Website by Thryve Communications. © 2021 Kalungi, Inc. - All Rights Reserved. [Powered by Atlas - a B2B SaaS HubSpot theme](https://www.kalungi.com/atlas-hubspot-theme-for-b2b-saas-software)