Market Commentary

The U.S. economy has been marked by mixed economic growth results, elevated inflation, and higher interest rates.

New research shows that REITs target high performing operators for investment and that skilled nursing operators increase staffing after becoming REIT tenants.

All property sectors were positive in January, led by lodging/resorts at 17.1%, industrial at 13.7%, and data centers at 13.2%.

The U.S. commercial real estate market is amid an uncoupling. Property operational performance has generally been strong for both public and private real estate, but valuation metrics and total returns have diverged.

U.S. REITs raised $2.5 billion from secondary debt and equity offerings in the fourth quarter of 2022, down from $8.6 billion raised in Q3.

REITs have low exposure to floating rate debt, with over 87% of the debt held by the industry at fixed rates.

REITs underperformed broader markets in 2022, as the FTSE Nareit All Equity REITs Index posted a total return of -24.9% and the FTSE Nareit Equity REITs Index returned -24.4%.

REITs offer sector diversification by giving investors better access to property sectors that house the modern economy, such as cell towers, data centers, self-storage, health care, industrial, and logistics.

REITs have a long runway to manage leverage in the higher interest rate environment because they have used fixed rate debt to lock in low interest rates for long terms.

Hiring was strong in the hospitality, warehouse, and retail sectors in October, and the data marked 2.5 years with hires greater than separations.

REITs posted positive results for the second consecutive month in November and outperformed stocks for the first time since April, as the FTSE Nareit All Equity REITs Index rose 6.0% and the FTSE Nareit Equity REITs Index gained 5.8%.

With mixed economic growth results, waning job gains, increasing interest rates, and rising recession risk, the U.S. economy is facing numerous headwinds.