Data from the FTSE NAREIT U.S. REIT Index showed that U.S. equity REITs posted total returns of 5.8 percent in April. That bested the S&P 500, which posted total returns of 1.93 percent.
“It was a very strong month for REITs,” said Brad Case, NAREIT’s senior vice president of research and industry information. “I have noticed that we’ve been seeing declines in the correlation between REITs and the broader stock market. This kind of different performance is part of what we see there.”
REITs had gained 15.44 percent through the end of April, compared to 12.74 percent for the S&P 500.
“People have been talking about a recovery of the stock market, but, actually, REITs have outperformed the stock market so far during the first one-third of the year,” Case said.
David Toti, senior managing director with Cantor Fitzgerald, said that REIT’s “made up a lot of ground” in April. He said REITs’ dividends, hard assets and visible cash flows appeared to attract investors in search of safe havens from broader economic concerns.
“I think one of our biggest concerns going into the year with the economy looking a little bit strong was that the appetite for yield was increasing,” Toti said. “REITs were worried that the generalist investors would go to lower-level equities.”
Alexander Goldfarb, managing director and senior REIT analyst with Sandler O’Neil and Partners L.P., also cited concerns about the broader economy, including potential effects from the European financial crisis, as a key reason behind investors’ interest in REITs in April. Low borrowing costs and positive prospects for rent growth amid tight supply of space appeal to investors as well.
Retail was the best performing sector for the month, posting gains of 9.81 percent. Case said trends in consumer spending indicate growing confidence in the economy
“People start spending before they feel confident. They get to the point where they just need stuff and can afford it, so they just go out and do it, even before they express confidence,” Case said.
Goldfarb said his firm has been “very bullish” on shopping centers. He said small shop tenants are filling vacant spaces in retail centers, helping to boost rents.
The timber REIT sector was a leading performer the previous month, up 7.3 percent in March. However, timber REITs underperformed in April, down 1.61 percent. Case downplayed the results for the sector.
“Timber has been so strong. That’s just investors taking a breather in that sector. There’s nothing that indicates any weakness for timber REITs,” Case said.