The S&P 500 just came out of its worst week since March 2020 and is still down by over 21% from the beginning of the year, with a move downward from 4,800 to under 3,800.
The Real Estate Select Sector SPDR Fund (NYSEArca: XLRE) has dropped from $51.50 to $39.75, down about 22.5% for the year.
That’s the benchmark for REITs and it’s not outperforming the market as a whole, an indicator that, in general, this sector is failing to provide investors with better returns than the stock market taken as a whole.
Here are some of the most well-known real estate investment trusts, many of which are components of the XLRE:
American Homes 4 Rent (NYSE: AMH) is down from $43 to $33.5 per share, down 22.3% – closely in line with the market.
American Tower Corporation (NYSE: AMT) is down from $285 to $248 per share, down about 13% – performing better than the market.
Crown Castle International Corp (NYSE: CCI) is down from $207 to $162 per share, down nearly 22% – closely in line with the market.
Digital Realty Trust, Inc. (NYSE: DLR) is down from $175 to $129 per share, down 26% – performing worse than the market.
Equinix Inc (NASD: EQIX) is down from $836 to $644 per share, down 23% – performing worse than the market.
Invitation Homes Inc (NYSE: INVH) is down from $45 to $34 per share, down nearly 24% – performing worse than the market.
Prologis Inc. (NYSE: PLD) is down from $165 to $113 per share, down nearly 32% – performing worse than the market.
Public Storage (NYSE: PSA) is down from $365 to $303 per share, down about 17% – performing slightly better than the market.
SBA Communications Corporation (NASDAQ: SBAC) is down from $380 to $304 per share, down by about 20% – in line with the market.
Simon Property Group Inc. (NYSE: SPG) is down from $160 to $97 per share, down by almost 40% – performing worse than the market.
Welltower Inc. (NYSE: WELL) is down from $85 to $79 per share, down by about 8% – performing better than the market.
To sum it up, only three of these REITs outperformed the market while five underperformed the market and three moved closely in line with it. It’s hard to make a convincing case that real estate investment trusts are better than stocks in general – at least, from the beginning of 2022 until today.
An Alternative Option
Revenue and funds from operations (FFO) have actually increased for many of these REITs while real estate values have remained relatively stable for the year, indicating that the net asset value (NAV) of these companies has likely improved in 2022.
Whether this is presenting a buying opportunity or a price correction for the REIT sector will require a more thorough analysis of each company. The major takeaway here should be that while publicly-traded REITs offer an easy way for retail investors to gain exposure to the real estate market, they’re still vulnerable to the stock market volatility.
Investors looking for alternative ways to invest in real estate may see greater long-term success by investing in non-traded real estate funds or private equity offerings that have little to no correlation with the stock market.
Related: How Fundrise’s Flagship Real Estate Fund Is Beating The Stock Market
Photo by Vitalii Vodolazskyi on Shutterstock
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