REIT returns fell in February as macroeconomic factors continued to dominate investor sentiment.
The total returns of the FTSE Nareit All REITs Index fell 7 percent in February, while the S&P 500 fell 3.7 percent.
Total returns of the FTSE Nareit All Equity REITs Index fell 7.3 percent in February. The total returns of the FTSE Nareit Mortgage REIT Index fell 3.3 percent in the month.
The yield on the 10-year Treasury note rose 0.2 percent in February.
According to Chilton Capital Management, REITs have been hit with the “perfect storm of rising interest rates, negative funds flows, and too much emphasis placed on the fact that the real estate cycle is getting mature, as evidenced by decelerating growth rates.”
Ki Bin Kim, managing director at SunTrust Robinson Humphrey, agreed that interest rates are playing a major role.
“The story has been a rise in interest rates and expectations for continued increases. That’s been tough for REITs as a whole,” Kim said. REIT valuations reflect the changes in the cost of capital and growth expectations for the sector, he added.
As for market moves going forward, “in the short term you’re going to be highly correlated to movements in rates and that makes a lot of sense,” Kim observed.
Chilton Capital added that while the pricing of properties can be influenced by factors such as interest rates, “we believe that it is unwarranted for REITs to be trading at recession-like valuations at a time when they boast all-time high occupancy, positive rent growth, and a path to dividend growth of 4 to 5 percent per year.”