The Real Deal New York

REITs had a bad week amid market volatility

Shares fall for some of the biggest players
By Konrad Putzier | February 09, 2018 04:25PM

The new year has gone from bad to worse for real estate investment trust investors, as share prices fell amid global market volatility this week.

As of midday Friday, Vornado Realty Trust’s stock was down 4.3 percent since the beginning of the week. Boston Properties was down 4 percent, Equity Residential down 6.2 percent and SL Green Realty down 6.9 percent.

The U.S. stock market overall was set for the worst week since 2008, according to the Wall Street Journal, with the Dow Jones index having fallen by more than 7 percent.

But even before this week, REIT stocks were having a bad 2018. While the Dow Jones rose to record highs throughout January, several real estate trusts saw their stocks fall (see chart).

“REITs have underperformed significantly due to disappointing 2018 earnings guidance that has come below Street expectations,” said John Kim, a REIT analyst at BMO Capital Markets. Investors have also been spooked by rising yields on 10-year treasury yields and signs that wage inflation is picking up across the U.S. economies.

Rising rates tend to be bad news for real estate because they make mortgages more expensive and other investments, such as bonds, more appealing. The real estate industry has been keeping an anxious eye on the new Federal Reserve chairman and any change in monetary policy, as TRD broke down in the February issue.