CIBC real estate analyst Dean Wilkinson has created a multi-factor quantitative model to produce top picks in the REITs sector,
“REIT fundamentals have always been unique, so quant analysis needs to be tailored to the sector. Our analysis suggests that growth in net asset value, funds from operations, and dividend yield are powerful metrics. In addition, the sector is very sensitive to momentum, while yield is an inverse factor… several factors that REIT fundamental investors consider relevant (i.e., those mentioned above) scored well upon a quantitative review. On the other hand, there was little quantitative support for other commonplace metrics such as leverage, payout ratios, and same-property growth. Our conclusions do not suggest that investors eschew rigorous, multi-faceted analysis—rather that use of quantitative metrics can enhance returns. With the above in hand, we create a multi-factor REIT model for stock selection that appears to drive alpha. It uses NAV growth, dividend growth, FFO growth, current dividend yield, and momentum”
The top quintile of REITs using the model includes: