NAV REITs Report Negative Median Total Returns for March
April 25, 2023 | James Sprow | Blue Vault
The median monthly total return for 16 continuously offered nontraded REIT programs (“NAV REITs”) was increasingly negative in March at -1.16% compared to negative 0.11% in February. Just four of the 16 reported positive total returns. This is the fourth 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 1.02%. The S&P 500 Index total return over the same three-month period was 7.33% and the NAREIT All Equity REIT Index return a total of 1.74%.
Chart I
The four NAV REITs that posted positive total returns in March were InPoint Commercial Real Estate Income (+0.71%) with a 6.54% estimated annualized distribution yield, Apollo Realty Income Solutions (+0.60%) which has yet to declare distributions, FS Credit Real Estate Income Trust (+0.37%) with an estimated annualized distribution yield of 7.37%, and Ares Industrial REIT (+0.01%) with an estimated annualized distribution yield of 3.63%. The REIT distribution yields are based upon the most recently declared distribution rates and the most recent NAVs per share for Class I shares and Class F-I for Apollo.
The most significant negative total return for March was posted by RREEF Property Trust which posted a Class I total return of negative 5.42% comprised of a 5.85% drop in its monthly NAV from $15.89 per share in February to $14.96 in March, offset by an estimated distribution yield of 5.15% annualized. Cantor Fitzgerald Income Trust’s Class I NAV per share dropped 2.65% in March, from $26.45 to $25.75, which was offset by its annualized distribution yield of 6.04%, resulting in a total return for the month of negative 2.14%.
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 15 months while the nontraded REITs had only four.
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 5.92% over the last 39 months. The average monthly return for the 11 REITs with monthly return data over 39 months was 0.81% compared to that of the S&P 500 Index at 0.75%. 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 also compared very favorably to those of the listed REITs represented in the NAREIT All REITs Index. Chart VI shows that the listed REITs had more volatility than even the S&P 500 Index and a lower average rate of return over the last 39 months. Since January 2022, the listed REITs have had negative total returns in 10 of 14 months. Since January 2020, the standard deviation of monthly total returns for the listed REITs index was 6.69% while the average monthly return of just 0.03% 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.
Chart VII
Sources: Blue Vault, Individual REIT Websites, S&P 500, NAREIT
