NAV REITs Report Flat Median Total Returns for June
July 24, 2023 | James Sprow | Blue Vault
The median monthly total return for 16 continuously offered nontraded REIT programs (“NAV REITs”) was just 0.01% in June, compared to negative 0.46% in May. Eight of the 16 reported positive total returns. This is the first month since November 2022 that, as a group, the continuously offered nontraded REIT programs have reported a positive median return, albeit a very small one. Year-to-date in 2023, the median total return for the 16 REITs was negative 2.94%. By contrast, the S&P 500 Index total return over the same six-month period was 16.89% and the NAREIT All Equity REIT Index total return was 2.97%.
Chart I
Eight nontraded REITs posted positive total returns in June, three more than did in May. The highest monthly total return was posted by Blackstone Real Estate Income Trust at 1.00%. Hines Global Income Trust was next with a positive return of 0.59%. FS Credit Real Estate Income Trust had the third largest total return at 0.57%, followed closely by Apollo Realty Income Solutions at 0.55%. Among the REITs with negative total returns, the most significant was the negative 5.58% total return by InPoint Commercial Real Estate Income. The REIT saw a drop in its NAV per share of 6.14%, from $18.55 to $17.41 in June.
Chart II
The following chart shows the contribution of monthly changes in per share net asset values (NAVs) make to the total returns. In calculating monthly total returns, the monthly distribution rate is added to the change in NAVs to arrive at an estimated total return.
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 18 months while the nontraded REITs had only six.
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 5.77% over the last 42 months. The average monthly return for the 11 REITs with monthly return data over 42 months was 0.73% compared to that of the S&P 500 Index at 0.90%. This comparison implies that nontraded REITs have much less risk but also have offered just slightly lower (0.17%) average returns compared to those of listed common stocks.
The scatter plot in Chart V illustrates the much lower risk represented by the continuously offered nontraded REIT returns when compared to both the monthly returns of the S&P 500 Index and the NAREIT All Equity REIT Index. Both indices made up of listed common stocks have much higher standard deviations, roughly five times that of the nontraded REITs.
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 42 months. Since January 2020, the listed REITs have had negative total returns in 18 of 42 months. Since January 2020, the standard deviation of monthly total returns for the listed REITs index was 6.53% while the average monthly return of 0.06% was 0.72% 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. May returns were encouraging for Blackstone REIT (+0.67%) and Starwood REIT (+0.45). Both REITs had positive total returns with small increases in their NAVs. A surprisingly negative total return for Ares Industrial REIT, one of the top total return performers in 2022, was due to a 3.3% drop in its Class I NAV per share, from $14.91 in April to $14.44 as of June 30, 2023.
Chart VII
Sources: Blue Vault, Individual REIT Websites, S&P 500, NAREIT, SEC
