US REIT indexes close Q3 in the red; underperform S&P 500

US real estate investment trust stocks underperformed the broader market in the third quarter of 2023.

The Dow Jones Equity All REIT index closed the quarter with a return of negative 8.4%, a further drop than the negative 3.3% return for the S&P 500.

The same REIT index is only slightly negative when looking at a one-year time period, at 1.6%; however, the S&P 500's return over the same time period was much larger at 21.6%.

Sector returns

All Dow Jones US Real Estate sector indexes underperformed the S&P 500 and closed the recent quarter in the red.

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The Dow Jones US Real Estate Apartments index fell the furthest during the quarter, logging a return of negative 11.7%.

Returns for several other notable indexes for the quarter included self-storage at negative 9.4%, industrial at negative 7.6%, manufactured homes at negative 6.8%, hotel at negative 4.9% and regional malls at negative 4.7%.

The office index fell the least during the quarter, at negative 3.7%, followed by the healthcare and strip center indexes at negative 4.3% and negative 4.5%, respectively.

Bottom-performing REITs

Healthcare REIT Medical Properties Trust Inc. was the worst-performing REIT stock above $200 million market capitalization for the quarter, at negative 39.8%. The healthcare REIT's share price dropped 14.1% on Aug. 8 following its second-quarter earnings release. Within the earnings release, the REIT reported normalized funds from operations (FFO) of 48 cents per share for the second quarter, a two-cent increase over the 46 cents per share reported for the second quarter of 2022. In the same earnings release, Medical Properties Trust narrowed its normalized FFO guidance for 2023 to $1.53 to $1.57 per share.

Office REIT Peakstone Realty Trust ranked next, with a return of negative 39.6% for the quarter, followed by advertising REIT OUTFRONT Media Inc. at negative 34.1%.

Top-performing REITs

On the other hand, hotel REIT Hersha Hospitality Trust's share price soared during the quarter, closing with a return of 62.7%. The large jump in share price came on Aug. 28 after the REIT announced its agreement to be acquired by affiliates of KSL Capital Partners LLC in an all-cash deal valued at approximately $1.4 billion. The $10.00 per share purchase price represented a more than 59.2% premium over the hotel REIT's share price the day prior.

Office REIT Hudson Pacific Properties Inc. also posted a vast return for the quarter, at 57.6%. Two other office REITs, SL Green Realty Corp. and Vornado Realty Trust, followed next with returns of 26.8% and 25.0%, respectively.