The Real Deal New York

The stock market is booming. So why are REIT shares falling?

Analysts point to rising rates, tax reform
January 24, 2018 11:00AM

Does no one like real estate investment trusts anymore? While the overall stock market is surging, real estate investment trusts are the odd one out.

Last year, the S&P 500 stock index rose by 21.8 percent, but the FTSE NAREIT All Equity REITs index rose by a mere 8.7 percent. And over the first few weeks of 2018 REIT shares are even down 2.4 percent while the stock market overall continued to climb.

Experts point to two explanations. One is that most REITs don’t really benefit from the recently passed federal tax reform because they don’t pay income taxes. The other: investors fear rising interest rates could hurt the real estate market.

“It seems like there’s been a broad selloff of defensive-type industries like real estate into other industries that will benefit more from rising rates, tax reform and faster growth in the economy,” Matt Kopsky, an analyst at Edward Jones, told the Wall Street Journal.

Steve Sakwa, an analyst at Evercore ISI, predicted that property prices could fall amid rising rates. “If the cost of money goes up [buyers] generally have to pay a little less for the asset,” he said.

REIT earnings season starts this week, and strong profits could give share prices a boost. On Tuesday, industrial REIT Prologis said that its profits in the first quarter were $373 million, up from $345 million a year earlier. [WSJ]Konrad Putzier