FTSE Nareit All REITs Index Up 4.1% in June

REIT returns were higher in June as broadly positive fundamentals continued to support the market, according to industry watchers.

The total returns of the FTSE Nareit All REITs Index rose 4.1 percent in June, while the S&P 500 rose 0.6 percent. The total returns of the FTSE Nareit Mortgage REIT Index gained 1.5 percent in June.

The yield on the 10-year Treasury note was flat in June.

Brad Case, Nareit senior vice president for research & industry information, noted that REITs have now outperformed the broader stock market for four consecutive months.

Since the end of February, returns now total 12.5 percent for REITs compared with 1.8 percent for the stock market, Case observed.

“REITs have been consistently undervalued, relative to the broad stock market, for almost seven years; they’re still undervalued, but over the past four months REIT investors have been rewarded for making investment decisions on the basis of operating performance rather than market myths,” Case remarked.

David Rodgers, senior analyst at Baird, noted that after having sold off in response to interest rate concerns, REITs have recovered to a “fair level.” With future interest rates moves now clearly telegraphed by the Federal Reserve, “from a rate perspective, REITs are in pretty good shape right now,” he said.

Rodgers also pointed out that REIT fundamentals have been broadly firmer than anticipated during the past few months. For example, industrial REITs continue to perform well and companies are anticipating rent growth that is even higher than indicated at the start of the year, he added.

At the same time, retail REITs “have seen the down draft and seem to be holding up better, with little signs here and there that things seem to be stabilizing,” Rodgers said.

“The bottom is looking better than anticipated and the top is looking better as well. You have a narrowing gap of performance that’s all generally positive. The combination of a better rate performance and better fundamentals are helping REITs to perform,” Rodgers said.

Matt Werner, portfolio manager at Chilton Capital Management, observed that the recent performance of the REIT sector reflects “increasing recognition of a significant gap between public and private market values, and sets the sector up for further positive total returns in the second half of the year.”

Turning to the performance of various property sectors in June, shopping center REITs posted returns of 8.3 percent. Returns for single family home REITs advanced 7.4 percent and data center REIT returns rose 6.7 percent in June.