Trepp: REITs Thriving Post Brexit

Strong market fundamentals, positive earnings reports and post-Brexit assurances of ongoing low interest rates led to real estate investment trusts’ healthy 3.87 percent total return in July, reported Trepp, New York. 

“REITs outpaced the Dow Jones Industrial Aveage and were on par with the S&P 500,” said Trepp Senior Director of Research Susan Persin. The DJIA returned 2.94 percent in July while the S&P 500 returned 3.69 percent.

But Persin noted that both the NASDAQ (6.6 percent) and the Russell 2000 (5.9 percent) outperformed REITs in July.

Lodging REITs posted the strongest total returns for July at 10.23 percent, Trepp said. Host Hotels and Resorts stock value gained 10.5 percent, which boosted the sector. 

Smith Travel Research, Hendersonville, Tenn., reported that lodging performance improved during the second quarter. Revenue per available room grew 3.5 percent compared to 2.6 percent in the first quarter. 

“New hotel supply has increased, and while national construction is well below historical levels it is a concern in markets like Houston, New York and San Francisco,” Persin said.

Persin noted that demand from e-commerce tenants is boosting the industrial sector while builders have remained cautious. Industrial REIT earnings increased 8.38 percent in July.

Some REIT sectors struggled during July, Persin said, noting that the data center REIT sector posted a -1.78 percent return. “Still, data centers are one of the top performing sectors this year,” she said, with a 33.17 percent year-to-date return. 

Persin called the REIT initial public offering market “dormant,” but noted several notable mergers last month. Brookfield Asset Management acquired Rouse Properties on July 6 and Annaly Capital Management completed its $1.5 billion acquisition of Hatteras Financial Corp., she said. “However, New York REIT and JBG called off their merger, which was originally announced in May,” Persin said. 

“The month’s performance shows that REITs’ strong yields and healthy underlying property fundamentals make them attractive compared to other investment opportunities,” Persin said. “No red flags indicate a market downturn yet, but some property types in some metros are softening, thus muddying the outlook for future growth.”