REIT returns edged higher again in October and outpaced the broader market on a year-to-date basis, although certain segments of the industry are feeling the impact of slower economic activity.
The total returns of the FTSE Nareit All REITs Index rose 1.1% in October, while the S&P 500 gained 2.2% during the same period. For the year to Oct. 31, the FTSE Nareit All REITs Index was 28.8% higher, while the S&P 500 was 23.2% higher over the same period.
The total returns of the FTSE Nareit mREIT Index gained 2.9% last month, while the yield on the 10-year Treasury was flat.
Tyler Batory, director of equity research at Janney Montgomery Scott LLC, noted that overall, the theme for the REIT sector has been fairly consistent this year. “You’re getting a lot of indications that we’re late cycle, things are slowing down, but at the same time interest rates are low. That sets up a fairly positive backdrop for REIT stocks,” he said. Balance sheets are also in good shape, he added.
Anthony Paolone, executive director at JPMorgan, noted that “we saw the 10-year Treasury yield bounce in the last couple of months, and broader equity market sentiment got a little better in the last few weeks. Those dynamics can act as a drag on REITs.”
Paolone noted that a number of property types including apartments, office, shopping centers, industrial, and net lease all put up low-to-mid single digit total returns for the month. Healthcare, malls, and some of the tech REITs had “tougher months – and those are sizable weightings,” he pointed out.
Manufactured home REITs led the way last month, with returns of 7.3% and 54.1% for the year to Oct. 31. Returns for free standing retail REITs were 6.6% higher in October and 35.1% higher year-to-date.
Industrial REIT returns advanced 5.1% last month and rose 49% for the year-to-date.
Meanwhile, lodging REIT returns dropped 3.1% in October. Batory said concern over economic fundamentals have been weighing on the sector.