The stock market ended the second quarter at a record high Monday, but interest rate-sensitive real estate investment trusts continue to lag behind the broader market.
Total returns for the FTSE Nareit All REIT index, which tracks U.S. REITs, were just 0.09 percent higher at the end of June than the start of the month but 1 percent lower for the quarter. Both figures are far under the S&P 500’s 5 percent returns for June. The Nasdaq also finished last month with returns of 7 percent.
Both of those indices hit record highs before edging down Tuesday amid pending trade talks and the budget bill the U.S. Congress is working to finalize. Meanwhile, investors have remained cautious about REITs in an inflationary, uncertain economy. President Trump’s tariff talk has also raised questions and concerns about job growth, construction material costs and consumer spending.
Higher interest rates are also top of mind for investors.
“Generalists have essentially said that with where rates are, REITs are not that attractive because we can find equally good yields in other debt-like instruments, and we can also find growth in other sectors,” said Vikram Malhotra, a REIT analyst at Mizuho.
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Not to mention, top tech stocks also have regained investor confidence.
“It continues to be a top-heavy market,” said Michael Knott, head of U.S. REIT research at Green Street. “REITs have been an afterthought in some sense, [with] middling return performance.”
Year to date, more defensive REIT sectors — think cell towers, health care and net lease properties — have outperformed. That’s in contrast to cyclical sectors like hotels, malls and office REITs that have to contend with tariff and job growth concerns, Malhotra said.
American Tower Corp.’s returns, for instance, are up almost 23 percent so far this year, outshining the S&P 500. The Boston-headquartered firm has 42,000 cell towers in its portfolio.
“[It’s been] a risk-off environment within REITs, but it’s not necessarily been risk off in the market more broadly,” he noted.
Total returns for office REITs were up 3.4 percent for the quarter, but they were down 7.5 percent year to date. Returns for Los Angeles-based Hudson Pacific Properties, for instance, are down 3.7 percent year to date. Boston Properties’ returns are down more than 7 percent.
In the second quarter, timberland REITs suffered the most among the sectors Nareit tracks. Those stocks’ total returns were down 13 percent, according to the industry organization.
Meanwhile, the best-performing equity REIT group in the second quarter, according to Nareit, was specialty REITs. Those firms, which manage and own nontraditional real estate like movie theaters and farmland, posted total returns of about 15 percent.
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