REIT returns lost ground in April as broader macroeconomic factors exerted pressure throughout the sector.
The total returns of the FTSE/NAREIT All REIT Index slipped 4.7 percent in April, while the S&P 500 Index gained 1.0 percent. The yield on the 10-year Treasury note rose 0.1 percent for the month.
Jeffrey Langbaum, senior REIT analyst at Bloomberg Intelligence, said negative economic indicators released in April, including weaker-than-expected first quarter gross domestic product, caused a pullback in REIT share prices.
Brendan Maiorana, an equity research analyst at Wells Fargo Securities, noted that REITs did well in the beginning of the year, “so there’s been a little bit of retrenchment relative to other equity sectors.” He added that some investors also see the potential for future equity issuances, which may have been another factor in their hesitation during April.
Despite April’s pullback, “it feels like [the REIT market is] in a really good position from a fundamental backdrop,” Maiorana said.
Langbaum offered a similar outlook for U.S. REITs.
“You’re seeing some pretty positive real estate fundamentals,” he said. “That’s rolling through the earnings that are coming out, but those types of positive signals are not being reflected in the share prices because the macro factors seem to be wining out.”
Morgan Stanley equity research analyst Haendel St. Juste noted that with estimated 2015 earnings growth in the high single digits and attractive dividend yields, “there’s still a pretty good argument to invest in REITs today.”
St. Juste noted that the timing of interest rate rises is definitely on the mind of REIT executives, particularly in terms of what higher rates could mean for cap rates and development underwriting.