REITs Move Lower in March

REIT returns were lower in March, as investors took a cautious approach toward the sector, market watchers said.

The total returns of the FTSE NAREIT All REITs Index dropped 1.4 percent in March, while the S&P 500 posted a return of 0.1 percent. Total returns of the FTSE/NAREIT All Equity REITs Index fell 1.6 percent in March. The FTSE NAREIT Mortgage REITs Index produced a total return of 3.1 percent. The yield on the 10-year Treasury note was flat for the month.

For the first quarter of 2017, total returns of the FTSE NAREIT All REITs Index were 3.0 percent, compared with returns of 6.1 percent for the S&P 500.

Brad Case, senior vice president for research and industry information at NAREIT, described March as “a month in which value stocks underperformed, whereas growth stocks were more positive.”

Although REITs are different from other value stocks in that their performance is based more on real estate market developments than the business cycle, they are still considered value-orientated companies, Case explained.

Jeffery Langbaum, senior REIT analyst at Bloomberg Intelligence, said March’s performance was partially related to interest rate policy, but he added that more fundamental market issues “were being baked into the performance than just purely rates.”

Meanwhile, Case pointed out that REITs still seem to be undervalued in all parts of the market despite the many signals that are bullish, such as the spread to Treasury notes and high-yield corporate bonds. The undervaluation is particularly evident with Mortgage REITs, he said.  Gains made by Mortgage REITs during March may indicate that investors have started to appreciate the valuation signals evident in the sector, Case added.