REITs Outperforming Broader Stock Market in 2018
December 18, 2018 | James Sprow | Blue Vault
The Wall Street Journal reports in a December 18 article that listed REITs are on pace this year to outperform the broader stock market for the first time since 2015. According to the article, Morgan Stanley expects income growth for real-estate owners to pick up again after years of declining growth, with net operating income forecasted to grow 3% in 2019, up from 2.8% expected in 2018.
The FTSE NAREIT All Equity REIT Index has a total return of 2.6% year-to-date while the S&P 500 has a total return of minus 3%. In the two previous years the REIT index returned less than 9% while the S&P 500 rose 12.0% and 21.8% in 2016 and 2017, respectively.
The year-to-date total returns for different REIT sectors shows Residential REITs with 9.83%, Industrial REITs at 8.47%, Retail REITs at 3.92%, and Office REITs at negative 4.42%. The values of office and net lease buildings have leveled off in 2018 according to Green Street Advisors, while values of malls and strip malls are down between 2% and 7% over the past 12 months.
J.P. Morgan Chase is estimating that the REIT dividend yields of 4% in 2019 would be attractive to investors when the broad market indexes are under pressure. The potential inversion of the U.S. government bond yield curve which in the past has preceded recessions, as well as the trade tensions between the U.S. and China are conditions that tend to favor more defensive stocks such as REITs.
Nontraded REITs covered by Blue Vault in the Q3 2018 Nontraded REIT review had median distribution yields of 5.5% for open offerings and 5.7% for closed offerings.
Among the top performing REITs are healthcare REITs and those involved in last-mile delivery services to consumers such as distribution facilities in the industrial sector.
Source: WSJ, Blue Vault
