REITs retreated modestly in July, but still outperformed the broader market as wider macroeconomic concerns set the trend for the month, according to analysts.
The total return on the FTSE NAREIT All REITs Index dipped 0.2 percent in July, although the decline was smaller than the 1.4 percent fall in the S&P 500 Index during the same period.
July’s modest pull-back came in the wake of a strong performance for REITs in the first half of 2014. As of July 31, the FTSE NAREIT All REITs Index had a total return of 15.9 percent, compared with a 5.7 percent gain by the S&P 500.
“REITs still beat the S&P, but they took a bit of a breather,” said Alexander Goldfarb, a managing director at Sandler O’Neil & Partners. He noted that lower summer trading volumes, an increased focus on global risks and interest in the direction of interest rates all played a role in July’s performance.
Mike Salinsky, a director at RBC Capital Markets, agreed that the market in July reflected more broad-based themes.
Matt Werner, a portfolio manager with Chilton Capital Management, said he was expecting REIT earnings to be more of a positive catalyst for the month. However, “it seems that expectations had run up a little bit higher than what the consensus numbers had shown,” he commented.
Werner added that in light of the recent run-up in REIT prices, “people look for an excuse for there to be a downdraft.”
Infrastructure REITs were among the best performers in July with total returns increasing 2.9 percent. Residential REITs also had a strong showing in July, up 2.4 percent. Timber REITs were among the weakest performers as returns dropped 5.4 percent for the month.
Meanwhile, Goldfarb remains positive on the outlook for REITs during the remainder of the year: “When you look at the underlying fundamentals and the tailwinds that REITs have been enjoying, those remain in place.”
According to Werner, “the long-term trend is still looking very positive.”