9/1/2017 | By Sarah Borchersen-Keto
REIT returns were flat in August, as investors adopted a hesitant stance amid broader macroeconomic uncertainty, according to market observers.
“August was a desultory month for investors in listed U.S. REITs and most other assets,” said Brad Case, NAREIT senior vice president for research and industry information.
The total returns of the FTSE NAREIT All REITs Index rose 0.6 percent in August, while the S&P 500 posted a total return of 0.3 percent. For the first eight months of 2017, total returns of the FTSE NAREIT All REITs Index gained 7.4 percent, while the S&P 500 returned 11.9 percent.
Total returns of the FTSE/NAREIT All Equity REITs Index gained 0.6 percent in August and 6.9 percent through the first eight months of the year. The total returns of the FTSE NAREIT Mortgage REIT Index rose 1.5 percent in August and 18.3 percent for the year to Aug 31.
The yield on the 10-year Treasury note dropped 0.2 percent in August. Through Aug. 31, the yield was down 0.3 percent for the year.
Michael Gorman, a managing director at BTIG, LLC, said he sees a “lack of conviction” in the market right now, which is resulting in a continuation of existing trends. The industrial real estate sector is experiencing above-average growth, while retail REITs remain under pressure. Industrial REITs posted total returns of 3.6 percent in August. Retail REITs saw returns fall 1.7 percent in the same time period.
Jeff Langbaum, senior REIT analyst at Bloomberg Intelligence, said market moves were “sector-specific and tenant-driven” in August. While REIT performance was flat during the month, Langbaum pointed out that variations among different property segments underscored their “specific dynamics.”
Until mid-to-late 2016, the REIT market was largely driven by interest rates and moves in the 10-year Treasury note, Langbaum observed. “Now it’s clearly shifted to being driven by fundamentals and tenant performance,” he explained.
Interest rate movements are less of a factor for investors than they were previously, but the fact that the Federal Reserve is generally raising rates remains in the back of their minds, Gorman said.
Infrastructure REITs also made gains, with total returns of 7.5 percent in August. Data center REIT total returns rose 4.1 percent for the month.
Health care REIT returns dropped 0.1 percent for the month. Analysts said concerns about the skilled nursing segment weighed on the shares.
Meanwhile, Case noted that REITs continue to outperform the non-REIT companies that are most similar to them. He pointed out that this year’s stock rally has been led by technology companies—and their stock prices were pushed up even more in August.