REITs’ Modest Gains in November in Line With Broader Market

REITs posted modest gains during November that were in line with the broader market, although year-to-date the sector continues to outperform by a solid margin.

The total return of the FTSE NAREIT All REITs Index was 2.3 percent in November. The S&P 500 Index rose 2.7 percent in November.

As of the end of November, the FTSE NAREIT All REITs Index had gained 25.8 percent in 2014, while the S&P 500 Index was up 14 percent.

Ryan Meliker, senior analyst at MLV & Co., said October’s solid showing (REITs were up 8.7 percent in the month) should be taken into consideration with regard to November’s gains.

“It’s hard to see two consecutive months with that kind of outperformance. Given the strength in October, I don’t think there are too many REIT investors that will be disappointed by the modest underperformance in November,” Meliker said.

According to Jeffrey Langbaum, REIT analyst for Bloomberg Intelligence, November’s movement was driven by mergers and acquisitions sentiment.

“You had some significant outperformers on the basis of either actual or speculated buyout activity,” said Langbaum, adding that the same trend also impacted underperformers in the market.

The wide variations among various REIT stocks “all netted out to an average performance,” according to Langbaum.

Going forward, movement in the REIT sector is linked to overall macroeconomic factors. However, “it doesn’t seem like there’d be anything obvious that would cause a reversal of the solid year-to-date performance and strong outperformance year-to-date versus the broader markets,” Langbaum said.

“From a fundamental perspective, it seems as if things are on the right track,” he said. Langbaum pointed out, though, that the effect of the anticipated increase in interest rates “remains a big question mark.”

Looking toward 2015, “we’re optimistic, as long as the economy continues this middling growth environment where we’re not going to see interest rates move up too high,” according to Meliker.

“If we can stay in this middle ground that we’ve been in the past couple of years…we’re optimistic that REITs are going to continue to outperform the overall market,” Meliker said.