FTSE Nareit All REITs Index Up 0.8% in July

REITs rose modestly in July, with data center REITs and regional mall REITs posting the strongest returns during the month.

The total returns of the FTSE Nareit All REITs Index rose 0.8 percent in July, while the S&P 500 rose 3.7 percent. The total returns of the FTSE Nareit Mortgage REIT Index gained 3.8 percent in July.

The yield on the 10-year Treasury note was 0.1 percent higher in July.

Matt Kopsky, an analyst at Edward Jones, said that given the outperformance by REITs in the last few months, “this pause is normal.” REIT performance was also kept in check by the 10-year Treasury yield increasing in response to strong employment report numbers and GDP data.

Bloomberg Intelligence analyst Lindsay Dutch noted that REITs were helped by strong earnings results late in the month. However, REITs are still “significantly underperforming” the S&P in 2018 through July, she added. For the year through July 31, total returns of the FTSE Nareit All REITs Index rose 1.9 percent while the S&P 500 gained 6.5 percent.

Kopsky noted that there was some sector rotation back into growth names during the month in the overall market, as well as within REITs. He pointed out that data center REIT returns rose 4.9 percent in July.

Regional mall REITs posted returns of 3.8 percent. Dutch noted that Simon Property Group (NYSE: SPG) and Taubman Centers Inc. (NYSE: TCO) reported better-than-expected second quarter results, with stronger portfolio occupancy than in the first quarter and further increases in tenant same-store sales.

“Retail REIT sentiment continues to improve, but there remains a healthy level of skepticism in the market,” Kopsky said.

Despite continued robust operating metrics, industrial REIT returns slightly lagged the market, falling 0.5 percent in July due to trade talk concerns, according to Kopsky.

Self-storage REITs are outperforming year-to-date, with returns of 7.4 percent through July 31, but gave some of that back in July due to investor fears around new supply and higher valuation levels for the group, he added.