TIREX – Q2 2019 Commentary
The TIAA Real Estate Securities Fund outperformed its primary index during the quarter and real estate securities continued to perform well on a YTD basis. Given the continued low interest rate environment, investors have sought yield in equities, and the real estate sector has benefited significantly. The team remains focused on long term growth companies with superior balance sheets.
Market Overview:
– REITs benefited from what continued to be a benign interest rate environment
o Market-based expectations for future and monetary policy have changed significantly since December
o In June, Fed cited “uncertainties” concerning its economic outlook and removed its reference to being “patient” about adjusting rates; they have since cut rates for the first time since 2008
– The dovish shift aided REITs as yield-hungry investors sought out the asset class
o Historically recognized asset class with its healthy dividends
– REITs underperformed the S&P 500 but advanced for the period
o Although most REIT sectors posted positive total returns, retail REITs continued to struggle
Performance Overview:
– The fund outperformed its benchmark the FTSE NAREIT all Equities REIT Index
– Two of the three largest individual contributors to the fund’s relative performance were industrial REITs
o Rexford Industrial Realty and Terreno Realty Corp. own and operate properties focused on the “last-mile delivery” services
o These both continued to benefit from growing demand
o Both companies also supported by strong earnings and increased guidance for 2019
– Sun Communities Inc., a REIT in the manufactured housing sector was also among the top three contributors
o Stocks rallied on much better than forecasted earnings and improved guidance
– Among individuals, an overweight position in office REIT Boston Properties, Inc., detracted the most
o Shares declined slightly as investors grew concerned about heightened office construction in NYC
– Second largest detractor was an underweight in Public Storage
o Industry’s largest owner and operator of rentable space
o Rallied after management reported stronger than expected first quarter earnings and revenue growth
Market Outlook:
– Remain constructive on the overall strength of U.S. commercial real estate and believe that the country’s solid economic footing and limited new construction bodes well for continued modest growth
o Expect many of the REIT sectors to see improving year over year earnings growth in 2019
– Expect retailer consolidation into the highest quality retail assets to continue
– Focus remains on long term growth oriented REITs with superior balance sheets, such as manufactured housing, industrial and data centers
– Stayed cautious toward sectors that typically require heavy capital expenditure spending
o This includes offices and shopping centers
Performance Review:
Peter Malone, CFA
Portfolio Manager
Direct: 617.226.0030
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109