S&P 500 real estate stocks earn negative returns in Q1; Simon Property in gainers

Suburban Houston Development

Art Wager

S&P 500 real estate stocks emerged as laggards in Q1, with the Real Estate Select Sector SPDR Fund ETF (NYSEARCA:XLRE) earning a negative return of 2.23% when the broader S&P 500 gained by 10.79%.

The real estate-focused ETF saw net inflows of ~$484.73M during the quarter, almost half of roughly $876.65M inflows in the previous quarter, according to the ETF news and analysis provider, etf.com.

Top 5 losers

  • SBA Communications (SBAC) -14.76%
  • Ventas (VTR) -14.21%
  • Kimco Realty (KIM) -9.92%
  • Regency Centers (REG) -9.71%
  • Boston Properties (BXP) -8.95%

Top 5 gainers

  • Iron Mountain (IRM) +14.19%
  • CoStar Group (CSGP) +10.30%
  • Simon Property Group (SPG) +8.92%
  • Digital Realty Trust (DLR) +5.83%
  • CBRE Group (CBRE) +3.84%

What analysts say

  • Dividend stocks, particularly REITs, have underperformed the broader market due to interest rate hikes. But the suppressed share prices of REITs present a short-lived opportunity for dividend investors to take advantage of, Seeking Alpha author The Dividend Collectuh said.
  • Commercial real estate is experiencing fast-rising delinquency rates, especially for loans against office properties. This, in turn, has caused considerable stress for entities like REITs, investment funds, LLCs, individual owners, and private equity holders of these buildings, SA analyst Bret Jensen said.
  • Two years of persistent rate-driven pressure on commercial and residential real estate markets appeared to be easing in early 2024, but firming inflation has again muddied the outlook, according to SA contributor Hoya Capital.
  • Private markets are finally feeling the pain that beset public REIT investors since 2021. Commercial property values have now declined over 20% nationally, and nearly 40% in some troubled segments. Outside of the office sector, the pockets of distress remain entirely debt-driven as property-level fundamentals remain buoyant, but the refinancing clock is still ticking towards zero for many “zero rate heroes”, Hoya Capital said.

Ratings

  • SA’s Quant Rating system grades XLRE as Hold, with a score of 2.67 on a scale of 5. Particularly, the system grades the ETF’s risk as D+, considering that its annualized volatility is 18.31% while the sector median is 12.94%.
  • SA analysts rate the fund as Hold.

“XLRE offers exposure to the REIT sector across a fairly concentrated 34 stocks. It performs well compared to its peers and has excellent liquidity. However, I am not that attracted by its 3.42% yield and its simple selection process,” SA author MacroGirl said.

Roy Walsh

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