The State Of REITs: June 2018 Edition

The State Of REITs: June 2018 Edition

Summary

In May, there was a strong negative correlation between REIT market cap and total return with micro cap REITs significantly outperforming.

The REIT recovery grew much stronger in May as all 20 REIT property types generated positive returns.

REITs outperformed the S&P 500, DJIA and NASDAQ for the 3rd month in a row.

Significant upside potential remains for REITs as the REIT sector still trades at a median 8.59% discount to net asset value (NAV).

Hotel REITs continue to outperform with an 11.21% average YTD total return.

REIT Performance

May was the best month for REITs thus far in 2018, with the average REIT returning 5.90%. This outpaced the S&P 500 (+2.16%), Dow Jones Industrial Average (+1.05%) and NASDAQ (+5.32%). After badly underperforming over the first 2 months of the year, REITs have outperformed the broader market in each of the last 3 months. REITs still lag well behind the broader market on total return year to date. This gap could close, however, if REITs continue their strong recovery. In this monthly publication, I will provide REIT data on numerous metrics to help readers identify which property types and individual securities currently offer the best opportunities to achieve their investment goals.

Source: Graph by Simon Bowler, Data compiled from SNL.com

In May there was a very strong negative correlation between market cap and total return, with large cap REITs significantly underperforming (+2.55%). Micro cap REITs, on the other hand, yielded a stellar 9.58% return. This very strong month was not enough, however, to overcome the dismal -11.48% average return of micro caps over the first 4 months of the year. As a result, micro cap REITs remain the worst performers YTD, with small cap and mid cap REITs leading.

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