New Non-Traded REIT Performance Indexes

Robert A Stanger and the Institute for Portfolio Alternatives (IPA) just released a comprehensive report tracking the performance of many non-traded REITs.  The two indexes are a Life Style REIT index that includes all the multi-share class non-traded REITs, and a NAV Index for REITs that publish NAVs on a daily or frequent basis.  The returns for both indexes were determined without sales loads and with distributions reinvested, with a start date of January 1, 2015.

Shock upon astonished shock, the two firms - one that consults (Stanger) to the non-traded REIT industry and one that is the trade and lobbying group (IPA) for the non-traded REIT industry - have developed two indexes that show non-traded REITs outperforming the big four publicly traded REIT indexes.  Ten percent offering costs be damned!

Snark aside, Stanger's methodology appears sound, but the data should be used as a guide not as gospel.  Stanger uses the REITs' published NAVs when available, or Net Investment per share, as described by NASD Rule 2340.  I am wary of sponsor approved NAVs, not that they are inherently inflated, but due to the gap between stated REIT NAVs and real market values when REITs list (which seems to show inherent inflated valuations).  For example, American Finance Trust (AFIN) and Colony Credit Real Estate ((CLNC) which along with certain Colony Capital assets is the two NorthStar Real Estate Income REITs) trade well far their last stated NAVs.  Guide not gospel.

The new indexes' total return figures also include REIT distributions.  I won't go into the impact of paying more in distributions than is generated from Funds from Operations, other than to say that REITs that over pay their distributions better have a corresponding offset that lowers NAV.   At some point, systemic distribution over payment will be corrected and reflected in a REIT's valuation.  Gospel not a guide.

This is good time to release an index of non-traded securities.  Public REITs had a bad year in 2018 due to a poor performing overall stock market and the impact of rising interest rates on REIT stock prices.  Non-traded REITs, while affected by rising rates, do not see an added market discount in their NAV calculations.  Markets are cyclical, so a rise in REIT stock prices can erase index under performance in a short period of time.  Guide not gospel. 

In the mean time, with the release of these new indexes, look out for the marketing blasts from Hartman, the sponsor of Hartman Short Term Properties XX, Inc., the top performing Lifestyle REIT over a three-year period.