This article is republished with permission from REITCafe.
U.S. markets rebounded in October, posting their best monthly performance in four years. Real estate investment trusts (REITs) also posted strong returns that offset losses from earlier in the year. The FTSE NAREIT All Equity REIT average gained 6.47 percent during October, helping the sector recover and bringing year-to-date total returns to 1.67 percent.
The markets appeared to shrug off concerns about the Chinese economy and slower job growth in August and September. In fact, REITs benefited from that slower job growth because it helped drive the Fed’s decision to further delay an interest rate increase. The Fed’s decision not to raise rates, combined with reports of strong quarterly earnings by many large REITs, helped drive October returns.
TREPP-i Survey Loan Spreads (50–59% LTV)* |
This Week | Previous Week | Previous Month | End 2014 | End 2013 | |
Industrial | 168 | 171 | 166 | 138.5 | 170 |
Multifamily | 165 | 166 | 162 | 139.8 | 166.7 |
Office | 172 | 175 | 174 | 148 | 175 |
Retail | 168 | 171 | 165 | 139.8 | 175 |
Average Spread | 168.25 | 170.75 | 166.75 | 141.5 | 171.7 |
10-year Treasury Yield** | 2.33 | 2.14 | 2.03 | 2.17 | 3.04 |
Among the various REIT sectors, the infrastructure sector posted the best returns, totaling 12.84 percent for the month. American Tower posted a 19 percent increase in revenue for the third quarter, although profit fell in its latest quarter because of one-time charges and foreign currency losses. American Tower announced the expansion of its presence in India this month, with a $1.17 billion investment for a 51 percent stake in Indian cell-tower owner Viom Networks. Its stock climbed 16 percent during the month. The other major REIT in the sector, Crown Castle International, posted earnings and revenues that beat estimates; its stock gained 8.4 percent during October.
The retail spending outlook is tepid, with retail sales that were relatively flat in August and September, and consumer confidence, which had increased in September, declining during October. Nevertheless, lower oil prices are benefiting the sector, and an August report from RBC Capital Markets noted an increase in planned store openings by chain retailers. Regional mall REITs are performing well. The two largest regional mall REITs—Simon Property Group and General Growth Properties (GGP)—each gained almost 10 percent during October, fueling a 9.94 percent gain in regional mall total returns during October.
The industrial REIT sector gained 9.3 percent during October on the strength of industrial REIT Prologis (PLD), whose stock climbed about 10 percent during the month. PLD has benefited from the proliferation of e-commerce and reported strong third-quarter operating results during October.
REITs made strong gains in October, but did not gain as much as broader markets. The health care and home financing mortgage REIT sectors posted negative returns for the month. In addition, while the lodging sector strengthened during October, its –18.09 percent year-to-date return makes it the worst-performing sector this year. REITs have gotten off to a strong start in November that, one hopes, will carry through the remainder of 2015.
* TREPP-i Survey Loan Spreads levels are based on a survey of balance sheet lenders. For more information, visit Trepp.com.
** - 10 yr. Treasury Yield as of 11/6/2015.