REIT returns lost ground in April and lagged the broader market, as interest rates and valuation levels both came into play during the month.
The total returns of the FTSE Nareit All REITs Index fell 0.1 percent in April, while the S&P 500 advanced 4.1 percent. The total returns of the FTSE Nareit Mortgage REIT Index rose 1.9 percent in April, while the yield on the 10-year Treasury note rose 0.1 percent.
Rob Stevenson, head of real estate equity research at Janney, noted that April’s underperformance followed a period of 12 months during which REITs outperformed the S&P by almost 1,000 basis points. “There’s been a substantial outperformance of REITs over the trailing period, so there’s always going to be these two, three, four-week periods when the group’s just not going to perform.”
Stevenson added that valuations for the group have “bounced back pretty handily, so it’s tough to argue that REITs are trading at any sort of substantial discounted valuation.” Meanwhile, April saw volatility in the 10-year Treasury, and “there’s still a swath of the public that feels upward movement in rates is bad for REITs,” he said.
John Kim, managing director–U.S. real estate at BMO Capital Markets, pointed out that REITs had a strong rebound at the beginning of the year. Like Stevenson, he noted that REITs seem “fully priced.”
With first quarter earnings beginning to trickle in, some companies have shown significant growth, according to Kim. Stevenson added that “earnings for the major food groups have been very consistent and very strong, especially in the apartment and industrial space.”
Industrial REIT returns led the pack in April, rising 4.3 percent during the month and 26.5 percent year-to-date. In the residential sector, single family home REITs posted returns of 3.7 percent in April, while lodging REIT returns gained 2.0 percent in April and are up 18.2 percent year-to-date.
Retail REIT returns dropped 3.5 percent in the month but are 10.4 percent higher for the year to April 30.