REITs Up in April Despite Sluggish Economy

REITs finished April on the upswing with a 2.8 percent gain, according to the FTSE NAREIT ALL REIT Total Return Index. For the second month in a row, they outperformed the broader stock market, as the S&P 500 showed a slight decline of 0.6 percent.

John Perry, a REIT analyst with Deutsche Bank, said REITs' gains could be attributed to multiple factors, including the ongoing economic recovery, the beginning of earnings season and a favorable financial environment due to low interest rates.

April's returns followed a 4.7 percent gain in March. Perry said REITs' strong performance so far in 2012 has led him to anticipate more modest returns.

"With the group now up about 13 percent year-to-date, I would expect the gains to moderate a little bit," he said.

Perry and Green Street Advisors analyst Lukas Hartwich both said REITs continue to benefit from low interest rates.

"The recovery is happening, but it's not robust by any means. So that, coupled with a low interest rate environment, is making real estate look attractively priced," Hartwich said. "It's a good environment for REITs overall."

The regional mall subsector enjoyed a strong month, with total returns of 5.8 percent. Tenant sales have been strong, especially at the high end, and malls are attractively priced relative to other sectors, Hartwich explained. Brad Case, NAREIT's senior vice president for research and industry information, said consumer spending was one factor that helped lift REITs over the broader stock market for the month. The retail sector overall gained 4.3 percent, according to NAREIT's data.

"I think really what we're seeing is that there is so much pent-up demand among consumers for things that they would like to by that retail REITs are seeing the benefit of that," Case said in a video interview with REIT.com.

Additionally, Case emphasized that the young infrastructure sector had a stellar performance, gaining 9.2 percent in April. It was the strongest performance of any one sector for the month.

"There is a way for investors to make investments in infrastructure through publicly traded REITs," he said.

Case also highlighted the returns of the mortgage REIT sector. Overall, mortgage REITs climbed 3.5 percent for the month.