Trepp: REITs may reach plateau.

Position:Commercial

Real estate investment trusts (REITs) ended February with relatively flat performance following some ups and downs, reported Trepp LLC, New York.

Trepp Senior Director of Research Susan Persin said positive performance by mortgage REITs largely offset equity REIT declines. "Current REIT performance reflects broader market behavior, but could also signal that markets may be plateauing," she said.

The FTSE/NAREIT All REIT Index fell 29 basis points during February, while the broader S&P 500 index fell 10 basis points.

"Real estate market fundamentals are healthy, evidenced by strong demand and supply that is mostly in check," Persin said. "Real estate asset values are high, benefiting [REITs] that are selling properties but making acquisitions more difficult."

Steven Marks, managing director with Fitch Ratings, New York, said many REITs are moving to a "build-over-buy" approach to growth as they find it increasingly difficult to purchase affordable assets.

"It's tough for companies to buy right now," Marks said. "Assets are expensive. Cap rates for institutional-quality real estate are at all-time lows, particularly in gateway coastal markets."

In addition, he noted that public REITs find it hard to compete with private buyers such as insurance companies and private-equity funds because those buyers typically have higher leverage thresholds than REITs.

"Second, REITs are trading below their net asset value," Marks said. "That, combined...

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