FTSE Nareit All REITs Index Down 7.7% in December

The total returns of the FTSE Nareit All REITs Index fell 7.7 percent in December, while the S&P 500 lost 9.0 percent. The total returns of the FTSE Nareit Mortgage REIT Index fell 5.7 percent, while the yield on the 10-year Treasury note lost 0.3 percent.

For 2018, the FTSE Nareit All REITs Index fell 4.1 percent, while the S&P 500 dropped 4.4 percent.

According to Chilton Capital Management, “2018’s REIT performance, especially the rebound following the precipitous drop to start the year, should serve as a reminder that REITs can benefit in an environment of decelerating GDP growth and low inflation.”

Tyler Batory, an analyst at Janney, pointed to a macroeconomic environment of slowing growth and global uncertainty — “What you’ve seen the past month or so is probably what you’re going to see in 2019.”

Despite the uncertainty, Batory noted that Janney has a “constructive outlook overall” on the REIT industry, highlighting the sector’s modest leverage and contractual cash flow position. “Most of those factors are positive heading into a potential downturn,” he said.

Looking to 2019, Chilton says the “choppy yet positive economy, without a recession, could produce a near ‘goldilocks’ environment that could drive REIT prices from a current discount of over 14 percent to within 3 to 8 percent of NAV for the first time since 2016.”

Turning to individual REIT property sectors, free standing, or net lease, retail led the way in 2018 with returns rising 13.9 percent. Manufactured home REITs saw returns gain 11.4 percent, while health care REIT returns added 7.6 percent.

John Kim, managing director of U.S. real estate at BMO Capital Markets, described health care REITs as a “surprise outperformer” in 2018. “You had some good catalysts during the year, including the QCP acquisition (by Welltower Inc. (NYSE: WELL)) but also a moderating 10-year yield, and the longer-term view of the ‘silver wave’ impacting demand.”

While returns for industrial REITs returns fell 2.5 percent for the year, “there’s still a secular, longer-term demand driver in that sector,” Kim added.

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