M&A activity provides boost to REIT sector

Returns were up in March and April, suggesting the tide is slowly starting to turn

TRD New York /
May.May 15, 2018 04:00 PM

Blackstone’s Jonathan Gray and Prologis CEO Hamid Moghadam

A recent spate of mergers in U.S. real estate investment trusts has some investors giving the underperforming sector another look.

March posted a total return of 3.71 percent for the FTSE Nariet All Equity REITs index, compared with a 2.5 percent decline for the S&P 500 index over the same time, the Wall Street Journal reported.

And REITs outperformed again in April, with the index showing a 0.52 percent return, ahead of a 0.4 percent decline for the S&P 500.

“The tide is turning very slowly. It’s not going to be a sea change,” Jonathan Woloshin, head of equities and real estate for the Americas at UBS Global Wealth Management’s chief investment office, told the Journal.

REITs have been underperforming for the past two years, and through the first four months of 2018, returns for the Nareit index were down 6.2 percent. During that time, the S&P 500 saw only a 0.4 percent decline.

Analysts had predicted that real estate fundamentals would decline in the beginning of 2018, but first-quarter earnings came in better than expected.

“The bottom didn’t fall out as quickly as some investors believed would occur,” said Thomas Bohjalian, executive vice president at the global portfolio manager Cohen & Steers.

The sector is also getting a boost from merger-and-acquisitions activity, which investors see as a quick route to big gains.

Blackstone Group, for example, is buying Gramercy Property Trust for $4.4 billion cash, and Prologis made an $8.4 billion stock-for-stock offer for DCT Industrial Trust.

Both deals represent a premium of roughly 15 percent. [WSJ]Rich Bockmann

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