03/04/2019 | by Sarah Borchersen-Keto

REIT returns were marginally higher in February, with sentiment turning more cautious as investors focused on REIT fourth quarter earnings reports and 2019 guidance, analysts said.

The total returns of the FTSE Nareit All REITs Index edged 0.5 percent higher, while the S&P 500 rose 3.2 percent. The total returns of the FTSE Nareit Mortgage REIT Index fell 1.0 percent, while the yield on the 10-year Treasury note gained 0.1 percent.

REIT market performance in February could not match the strong gains seen the previous month, when the FTSE Nareit All REITs Index advanced 11.4 percent. January was the strongest monthly performance for REITs since October 2011.

Lindsay Dutch, analyst at Bloomberg Intelligence, noted that swings in December and January were generated more by moves in the 10-year Treasury yield. February, however, was clearly earnings-driven, she said.

Rob Stevenson, managing director at Janney, noted that the more muted guidance forecasts issued by some REITs for 2019 was not surprising.

“When you get into a period of time with some macro uncertainty coming up with Brexit and U.S. trade tensions, I think that a lot of management teams are going to be prone to under-promising and over-delivering,” he said.

Fundamentals have not really changed, Stevenson added. “You’re still set up well for the group to perform. The 10-year is still very conducive to real estate, and REITs specifically, doing well.”

Among the best performers in February, data center REIT returns rose 4.9 percent, while lodging REIT returns gained 4.2 percent.

Year-to-date, lodging REITs are leading the market with returns of 17.3 percent. Office REIT returns are 16.9 percent higher for the year, while industrial REIT returns are 16.7 percent higher so far in 2019.

Dutch noted that in the self-storage REIT sector, net operating income growth expectations for 2019 are well below expectations, and 2018 levels. “There’s just a lot of new supply coming on and that’s hurting more than most people expected it to this year,” she said. Self-storage REIT returns dropped 1.1 percent in February.