10/02/2017 | by
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REITs moved modestly lower in September as broad concerns about the economy, the direction of interest rates and the length of the current real estate cycle combined to keep the sector in a holding pattern, observers said.

The total returns of the FTSE Nareit All REITs Index dropped 0.6 percent in September, while the S&P 500 posted a total return of 2.1 percent. For the first nine months of 2017, total returns of the FTSE Nareit All REITs Index gained 6.7 percent, while the S&P 500 returned 14.2 percent.

Total returns of the FTSE/Nareit All Equity REITs Index lost 0.8 percent in September and 6.0 percent through the first nine months of the year. The total returns of the FTSE Nareit Mortgage REIT Index rose 1.5 percent in September and 20 percent for the year to Sept. 29.

The yield on the 10-year Treasury note rose 0.2 percent in September. Through Sept. 29, the yield was down 0.1 percent for the year.

Alexander Goldfarb, a senior REIT analyst at Sandler O’Neill & Partners, noted that despite factors weighing on the REIT sector, underlying fundamentals have not changed during the course of this year. “Overall, the fundaments are fine,” Goldfarb noted.

David Rodgers, senior analyst at Baird, agreed: “Real estate is a little bit status quo right now.”

“Real estate is seven, eight years into the recovery, if not more. Now it’s positioning for whatever that next phase of the economy is — be it inflation or slower growth,” Rodgers said.

Looking ahead to REITs’ third quarter earnings reports, Goldfarb said some of the stories to watch include the impact of severe weather events on REITs active in Puerto Rico and Houston, as well as potential development delays in the multifamily sector related to labor shortages and permitting problems.

Turning to the performance of property sectors during September, retail REITs bucked the overall trend to post total returns of 0.7 percent in the month. Self-storage REIT returns gained 5.6 percent last month, while office REIT returns were 1.8 percent higher. Returns for lodging REITs were 4.7 percent higher.