FTSE Nareit All REITs Index Down 2.4% in September

REIT returns slipped in September, with interest rate concerns undercutting gains made during the previous month.

The total returns of the FTSE Nareit All REITs Index fell 2.4 percent in September, while the S&P 500 rose 0.6 percent. In August, the FTSE Nareit All REITs Index rose 2.3 percent. The total returns of the FTSE Nareit Mortgage REIT Index fell 1.0 percent in September, while the yield on the 10-year Treasury note rose 0.2 percent. In August, the yield on the 10-year Treasury note was flat.

Michael Gorman, managing director at BTIG, said REIT market moves in September were broadly in line with a rising interest rate environment “and the negative pressure that puts on the space as you get more competition from other bond-like products.”

“There was a refocus on the direction of interest rates…coupled with some greater clarity on how people are thinking about 2018 and 2019 estimates. That put a little bit of headwind into the market,” he added.

Sandler O’Neill + Partners managing director Alexander Goldfarb noted that despite a healthy operating environment for REITs, “the challenge is on the equity side, because the bid for REITs is outflanked by the bid for the broader economy.”

Goldfarb said he expects to see continued privatizations of REITs “because the underlying real estate is worth more than where Wall Street has priced it.”

Meanwhile, Gorman said there appears to be “a little bit of cross current” in the REIT sector as views about the length of the economic recovery mix with concerns about rising interest rates. For example, defensive sectors such as triple net and heath care REITs are negatively affected by interest rates but would be the place to invest in an economic downturn, he noted.

Among various property sectors, industrial REITs bucked the trend, with returns gaining 0.1 percent during September. Returns for self-storage REITs fell 4.6 percent, health care REIT returns dropped 4.3 percent, and timber REIT returns fell 5.7 percent.