Real estate investment trusts declined by 4% and underperformed the S&P/ASX 200 by 770 basis points during the February reporting season; however, beneath the surface, the sector has improved materially, excluding the impact of interest rates, according to a Thursday Jefferies note.

The investment firm noted that property asset valuations have turned positive and transaction and capital raising markets have reopened, with above AU$8.7 billion of third-party equity raised.

Jefferies added that the outlook for earnings per share growth across the sector is improving.

Jefferies has a buy rating on Arena REIT and Charter Hall Group with price targets of AU$3.86 and AU$32.03, respectively. The research firm kept an underperform on Centuria Office REIT with a price target of AU$0.94.

Jefferies kept a hold rating on BWP and Centuria Industrial REIT with price targets of AU$3.63 and AU$3.48, respectively.