NAV REITs Report Negative Median Total Returns for April

May 25, 2023

NAV REITs Report Negative Median Total Returns for April

May 25, 2023

NAV REITs Report Negative Median Total Returns for April

May 25, 2023 | James Sprow | Blue Vault

The median monthly total return for 16 continuously offered nontraded REIT programs (“NAV REITs”) was just barely negative in April at -0.03% compared to negative 1.16% in March. Eight of the 16 reported positive total returns. This is the fifth consecutive month that the NAV REITs have reported a median negative total return, comprised of the monthly changes in their net asset values (NAVs) and their pro rata distribution yields. Year-to-date in 2023, the median total return for the 16 REITs was negative 1.18%. The S&P 500 Index total return over the same four-month period was 8.89% and the NAREIT All Equity REIT Index total return was 2.05%.

Chart I

Eight nontraded REITs posted positive total returns in April, four more than did that in March. The highest monthly total return was posted by Apollo Realty Income Solutions at 0.60%. FS Credit Real Estate Income Trust was next with a positive return of 0.53%. Cottonwood Communities had the largest negative total return at -1.54%.

Chart II

Chart III

The favorable comparison in the relative volatility of the NAV REIT monthly returns is revealed when plotting the total returns of those REITs to the S&P 500 Index in Chart IV. The S&P 500 Index had a total of eight months in which returns were negative over the last 16 months while the nontraded REITs had only five.

Chart IV

Investors who consider the risk vs. return data will appreciate the favorable trade-off found in nontraded REITs with their average standard deviation of monthly total returns at 1.32% compared to the much higher standard deviation of the S&P 500 Index returns at 5.84% over the last 40 months. The average monthly return for the 11 REITs with monthly return data over 40 months was 0.81% compared to that of the S&P 500 Index at 0.77%. This comparison implies that nontraded REITs not only have less risk but also have offered higher average returns than listed common stocks.

Chart V

The monthly returns for NAV REITs compared very favorably to those of the listed REITs represented in the NAREIT All REITs Index. Chart V shows that the listed REITs had more volatility than the S&P 500 Index and a lower average rate of return over the last 40 months. Since January 2020, the listed REITs have had negative total returns in 17of 40 months. Since January 2020, the standard deviation of monthly total returns for the listed REITs index was 6.61% while the average monthly return of just 0.04% was less than 1% when annualized.

Chart VI

Chart VII vividly illustrates the decline in monthly total returns posted by the five largest NAV REITs. Beginning in June 2022, after a strong beginning to 2022, the REITs had modest monthly returns through October, but negative returns began to emerge in November and continued through January 2023. February began an upward trend in NAVs for these REITs that we thought might continue. Unfortunately, the results in March did not support that hope. April returns may be signaling a potential respite, as Ares Real Estate Income Trust (+0.05%) and Blackstone REIT (+0.20%) moved toward positive total returns. Both REITs had positive total returns due to their distribution yields which offset declines in their NAVs.

Chart VII

Sources: Blue Vault, Individual REIT Websites, S&P 500, NAREIT