FTSE Nareit All REITs Index Up 3.4% in August

The total returns of the FTSE Nareit All REITs Index rose 3.4% in August, outpacing the S&P 500 which dropped 1.6% during the same period. The total returns of the FTSE Nareit Mortgage REIT Index fell 6.5% last month, while the yield on the 10-year Treasury was 0.5% lower.

For the year to Aug. 30, the FTSE Nareit All REITs Index was 24.7% higher, while the S&P 500 was 18.3% higher.

Rob Stevenson, head of real estate equity research at Janney, said the performance of REIT stocks during the past month demonstrates a flight to quality.

“As people get more nervous about the potential for recession and what’s happening from a global standpoint, REITs tend to attract more capital. It’s not unlike what you’re seeing with gold and some of the other safe havens,” he said.

Within the REIT sector, low dividend yield, high valuation, larger market capitalization, and more liquid stocks are performing better, Stevenson said.

John Kim, managing director of U.S. real estate at BMO Capital Markets, noted that the risk of cap rates moving meaningfully higher appears to be off the table. He added that “valuation is a lot less important. What’s being valued at a premium in the market are companies and sectors with visible growth and manageable capex.”

According to Chilton Capital Management, the inverted yield curve sent the market into a “freefall” for several days in August and has continued to fuel volatility. The prospect of a lower yield environment coupled with positive near-term fundamentals bodes well for the near-term total return of REITs, they added.

“With the large drop in the 10-year Treasury yield and a slowing economy, we now believe that REITs can trade closer to net asset value (NAV) than originally projected and that NAVs are moving slightly higher,” said Chilton Capital portfolio manager Matthew Werner.

Turning to the various REIT sectors, data center REIT returns led the way with gains of 11.5% in August.

Manufactured home REIT returns gained 9.7% during the month, while self-storage REIT returns were 8.6% higher. Returns for infrastructure REITs advanced 8.4% in August, and for the year to Aug. 30 were 43.2% higher.