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US REITs Gain Twice As Much As The S&P 500
12 September 2017 | World Views | Mark Mayer
 


With a headline like this, it is only right to cut to the chase straight away. The S&P 500 returned 0.3% in August and US REITs, measured by the FTSE NAREIT All REITs Index*, outperformed by double, ending the month with a 0.6% gain.

Admittedly, these are not numbers to get excited by, especially considering what both indices have done in the last eight months (year-to-date 2017)...

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S&P500: 11.9%

FTSE NAREIT All REITs Index: 7.4%

August then was a lacklustre month for both indices, coming in at almost five times less than the average achieved in 2017 thus far by the S&P 500, and again roughly one and a half times under the average achieved by the FTSE NAREIT All REITs Index.

Why the focus on US REITs?

Before we take a look at what may have affected the August numbers, it is worth reminding readers that US REITs make up around two-thirds of the total global listed REIT space by market capitalisation. This is why a fair amount of time is spent looking at the US by REIT investors - it is the region where the market offers the most choice and is often the most developed.

For example, consider the MSCI World REITs Index covering 23 developed markets around the world including Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK and the US.

Nine of the top ten constituents are US-listed REITs, and the United States makes up almost three quarters of the total weighting.

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August, according to US commentators

Speaking for Global Financial Services firm BTIG, Managing Director Michael Gorman felt that there was a "lack of conviction" in the market in August. He felt this translated into the extension of established trends, where for example the industrial sector of real estate (up 3.6% for the month) continued to grow in contrast to retail REITs (down 1.7% for the month), which continued to feel the strain - the story of retail for some time now.

Bloomberg Intelligence’s senior REIT analyst, Jeff Langbaum, also pointed to the "specific dynamics" underpinning the larger real estate sector, saying that the REIT market has "clearly shifted to being driven by fundamentals and tenant performance" whereas just last year for example, the focus was on interest rates and where they were headed.

Good gains were also seen in infrastructure REITs (up 7.5%) and data centre REITs (up 4.1%) in August.

REIT outlook going forward

According to portfolio manager Jay Leupp of Lazard Asset Management, Brexit’s long-term implications include Britain and continental Europe benefiting from renegotiations around trade agreements, a net bullish outcome for UK real estate generally.

The team at Lazard Asset Management also believe that while the economy in Europe is slower growing generally, "in the very high quality locations, we believe that assets particularly in the office, rental and industrial sector are probably slightly undervalued."

He also added that good entry point valuations exist in German residential names, "an area that has good long-term rent growth prospects."

In Asia, the firm remain bullish on Hong Kong, China, and the emerging market of the Philippines, where the fund is already invested.

They remain cautious when dealing in US office and multifamily REITs "in certain geographies" as they are wary of a potential cycle maturing phase and rent growth slowing in these sectors.

Finally, pockets of value are still on offer in the self-storage and single family rental space, according to Leupp.

References:

MSCI World REITs Index Snapshot (www.msci.com)

FTSE NAREIT All RETs Index Up 0.6% in August - Sarah Borchersen-Keto (REIT.com)

Real Estate Fund Manager Says Europe Undervalued – Allen Kenney (REIT.com)

cta


mark

Mark Mayer
Investment Specialist at Discovery Invest

Mark graduated with a Business Science Degree from the University of Cape Town in 2007. He then joined Sharenet, during which time he also completed his B.Com Honours through UNISA. Mark has helped to build, launch and manage derivative and share trading brokerage businesses. He is also a JSE Registered Securities Trader, and has worked on the trading desk at Sharenet. After seven-and-a-half years at Sharenet Mark then moved to Reitway Global (a specialist Global Listed Property Fund Manager) where his passion for property was further kindled. Mark currently works for Discovery Invest as an Investment Specialist on their Investec Managed fund offering. He has over nine years of experience in the equity and asset management sector and can be reached at: markm@discovery.co.za


Disclaimer:
The information contained in this article is for informational purposes only and must not be regarded as a prospectus for any security, financial product or transaction. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial issue. Investors should consider this research/article as only a single factor in making their investment decision. We recommend you consult a financial planner/advisor to take into account your particular investment objectives, financial situation and individual needs.

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