A Goldman Sachs analyst said Thursday he expects real estate investment trust stocks to sell off 15 percent or more this year despite the sector's recent outperformance.
In a client note, analyst Jonathan Habermann remains cautious on the sector, citing concerns over valuation, slowing fundamentals and the lack of deals.
So far, the sector has performed better than the broader markets but Habermann attributes part of this to recent Federal Reserve interest rate cuts.
Year-to-date, the FTSE NAREIT All REIT index has returned 8.22 percent, according to the National Association of Real Estate Investment Trusts. During the same period, the Dow Jones industrial average has lost 2.76 percent and the Standard & Poor's 500 index has fallen 3.32 percent.
"As such, we continue to call for a sell-off of 15 or more for REITs, as investors adjust return expectations in light of higher funding costs and lower leverage levels, not to mention more modest growth rate assumptions," he wrote.
Habermann continues to favor long-term lease sectors such as New York City office REITs and mall owners. His top "Buy" stocks are Simon Property Group Inc., Taubman Centers Inc. and Boston Properties Inc.
He is most cautious on apartments, developers and deal-based REITs, including apartment owner AvalonBay Communities Inc., Colonial Properties Trust, commercial real estate services firm CB Richard Ellis Inc. and office and industrial owner Liberty Property Trust.
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