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US REIT returns continue to soar in Q3, outperforming broader market

Share prices for U.S. equity real estate investment trusts continued to grow in the third quarter, marking the third consecutive quarter of positive returns.

The SNL U.S. REIT Equity index finished the quarter with a 7.6% total return, 5.9 percentage points higher than the S&P 500's 1.7% return for the same period.

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Among the REIT property sectors, the SNL U.S. REIT Manufactured Home index logged the highest return for the quarter, at 13.6%. The healthcare index generated the next-highest return, at 11.1%, followed by the residential and multifamily indexes at 10.4% and 10.3%, respectively.

The hotel and regional mall indexes, however, generated returns of negative 1.2% and negative 0.6%, respectively, for the quarter.

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CyrusOne Inc. generated the highest return during the quarter of all equity REITs above $200 million in market capitalization, at 37.9%. The data center-focused REIT's share price jumped 8.2% on the trading day following its second-quarter earnings release, where CyrusOne upped its full-year 2019 normalized funds from operations guidance to a range of $3.50 to $3.60 per share from its prior range of $3.30 to $3.40 per share. In the same release, CyrusOne also increased its quarterly dividend payment by 9%.

A couple weeks later, CyrusOne's share price spiked yet again following a Bloomberg News report that the REIT had been approached by at least one potential buyer.

Single-tenant retail REIT American Finance Trust Inc. followed as the second-best performing REIT stock during the quarter, with a return of 31.1%. Two multifamily REITs, Investors Real Estate Trust and Independence Realty Trust Inc., were also among the top-performing REIT stocks, with returns of 28.5% and 25.2%, respectively.

Regional mall REIT CBL & Associates Properties Inc. rounded out the top-five with a return of 24.0%. CBL's share price has trended higher in the wake of an Aug. 26 ownership filing indicating that real estate activist investor Michael Ashner along with Exeter Capital Investors LP and its related entities acquired a 5.97% stake in the REIT. In the filing, Exeter Capital said it believes that CBL was undervalued and "represented an attractive investment opportunity."

While CBL's stock logged positive gains during the third quarter, its share price has fallen drastically over the past year, generating a one-year return of negative 64.9%.

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At the other end of the spectrum, seven REIT stocks logged negative returns in the double-digits for the quarter.

Cannabis-oriented Innovative Industrial Properties Inc. finished the quarter with a return of negative 24.6%, as share prices for other cannabis-oriented stocks also declined during the quarter. Despite a drop in the recent quarter, Innovative Industrial Properties' share price has almost doubled over the past 12 months.

Communications REIT Uniti Group Inc. followed, logging a return of negative 17.7% for the quarter. Earlier in the year, Uniti Group's share price plummeted after its primary tenant, Windstream Services LLC, lost a court battle against hedge fund Aurelius Capital Master Ltd. and proceeded to file for bankruptcy protection.

Hotel REIT CorePoint Lodging Inc. rounded out the bottom-three performing REIT stocks for the quarter, with a return of negative 16.8%. CorePoint's large share-price drop during the quarter followed its second-quarter earnings release, where the hotel REIT reported a 31% decline year over year in its adjusted funds from operations, as well as a 6.1% decline in its same-store revenue per available room.

Both prison REITs, GEO Group Inc. and CoreCivic Inc., were also among the bottom-performing REIT stocks for the quarter, with returns of negative 15.2% and negative 14.6%, respectively.

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