TIREX – Q2 2018 Commentary
The TIAA-CREF Real Estate Securities Fund lagged its benchmark during the quarter but has greatly outperformed YTD. REITs bounced back in a major way during the quarter with all sectors posting positive returns. The team continues to invest in quality companies with long term growth opportunities and higher credit ratings.
Market Overview:
– The FTSE NAREIT All Equity REIT Index returned 8.5% during the period compared to the S&P 500 posting a return of 3.42%
– REITs outperformed the broader stock market as the appeal for defensive assets increased during the quarter
o US REITs proved to be safe haven for value as domestic bonds, international currencies, and emerging markets sold off during the quarter
– Healthcare, hotel, and retail REITs delivered the highest total return while residential, office, and industrial REITs fared the worst
– All 11 major REIT sectors advanced during the period
Performance Overview:
– The fund’s underperformance during the period was generally do to its focus on long-term growth oriented REITs with higher credit ratings
o Examples include single-family homes, industrials, and data centers
– During the period, the typically higher-yielding sectors including health care, self-storage, and lodging performed the best
– The fund took profits from holdings in the infrastructure sector and strategically allocated proceeds across a number of sectors including diversified, specialty, and shopping centers
– Major contributors included GDS Holdings, a provider of data center infrastructure in China and a stake in National Storage Affiliates Trust, an owner of self-storage facilities
– Also, underweighting American Tower added to relative returns
– Detractors included an overweight to single-family-home-rental operator Invitation Homes, Inc.
– Second largest detractor was Healthcare Trust of America, Inc., a national owner and operator of medical office buildings
Market Outlook:
– Interest rates will increase progressively in the second half of 2018, albeit at a slower pace than during the first half
– Negative sentiment around retailers and increased propensity of store closures should continue to negatively impact owners of low quality real estate in the country
o Improved capital markets access should facilitate accretive transaction activity among owners of high quality real estate in the country
– Cash flow growth remains stressed in the retail REIT sector
– Cash flow growth within self-storage, rental housing, and industrial REIT sectors remain strong
Performance Review:
Peter Malone, CFA
Research Analyst
Direct: 617.226.0030
Fax: 617.523.8118
Crestwood Advisors
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Suite 500
Boston, MA 02109
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