REITs posted modest gains in June and marginally outpaced the broader market on a year-to-date basis, as investors factored in macroeconomic events, the performance of the 10-year Treasury, and potential interest rate developments.
The total returns of the FTSE Nareit All REITs Index rose 1.6 percent in June, while the S&P 500 gained 7.1 percent. The total returns of the FTSE Nareit Mortgage REIT Index rose 5.1 percent in June, while the yield on the 10-year Treasury note dropped 0.1 percent.
Year to date, the FTSE Nareit All REITs Index is 18.8 percent higher, while the S&P is 18.5% higher.
“Rising tension in the Persian Gulf, tariffs and trade concerns, fear of deflation, and declining global yields have all risen to the top of the daily conversation,” said Alexander Goldfarb, managing director at Sandler O’Neill + Partners.
Rob Stevenson, head of real estate equity research at Janney, said the month saw a number of REIT subsectors continuing to lag, including retail and office. At the same time, “the retreat of the 10-year [Treasury] hasn’t really helped.”
Meanwhile, he noted that because REITs are considered a risk-off investment, any time there appears to be an improvement in macroeconomic trends REITs can be sidelined in favor of other asset classes. Stevenson also noted that REIT valuations are “not particularly cheap” at this time.
Jim Sullivan, managing director and REIT analyst at BTIG, noted that “REITs, in many respects, look to be reasonably fully valued relative to the 10-year.” BTIG expects REIT returns to be slightly negative in the second half, on the back of 10-year yields rising.
Turning to various REIT property sectors, industrial REIT returns were up 7.5% in June, and year to date gains stood at 32.2%. Single family rental REITs posted a 2.7% gain in returns, and a 30% year to date increase.
Returns for data center REITs added 2.2% in June and 29% for the year to the end of June.
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